“Home consumption is expected to fall by 2.4% next year”… Concerns about high prices and declining incomes

FKI, 2023 National Consumption Expenditure Plan Inquiry
56.2% of respondents will “reduce consumption compared to this year”

On the 5th, consumers browse products in a large supermarket in Seoul. [연합뉴스]

South Korean household consumption is forecast to slow next year due to high inflation and concerns about falling incomes due to the economic recession, according to a new survey. Household consumption has continued to rise since the second half of 2020 and has served as a safety valve for the Korean economy, but concerns are being raised that a drop in consumption could hurt the domestic economy.

The Federation of Korean Industries (FKI) asked Mono Research, a polling agency, to conduct a survey of 1,000 people aged 18 or older nationwide on the ‘2023 National Consumption Expenditure Plan’, it said on the 6th. As a result, household consumption expenditure next year is expected to fall by 2.4% on average compared to this year.

By income quintile, expenditure on consumption is expected to increase (0.8%) only in the 5th quintile, which is the top 20%, while all other income quintiles (bottom 80%) are expected to decrease. In the first to fourth quintile, it is predicted that the lower the income, the greater the reduction in consumption expenditure. Looking closely at the forecast for next year’s consumption expenditure, 1st income quintile -6.5% ▶ 2nd quintile -3.1% ▶ 3rd quintile -2.0% ▶ 4th quintile -0.8% ▶ 5th quintile +0.8%.

The Federation of Korean Industries (FKI) explained that this is because the lower the income, the more affected by the drop in employment and income due to high prices and the economic recession, and the lower the ability to eat

Inflation (43.9%) was identified as the biggest reason for reducing consumer spending next year. It was followed by concerns about job losses and reduced income (13.5%), the burden of taxes and utility bills (10.4%), and the burden of repaying debt (principal and interest on loans, etc.) (10.3%). By item, respondents said they would reduce the use of travel, eating out, and accommodation (21.0%), durable goods (15.4%), and leisure and cultural life (15.0%).

On the other hand, the consumption of essential consumer goods such as food and beverages (26.6%), housing costs (rent / monthly rent, electricity / gas, etc.) (20.9%), and daily necessities (12.7%) is expected to . increase. This is due to the fact that it is difficult to reduce spending despite rising prices. Based on this survey, the Federation of Korean Industries estimated that people will tighten their belts and exclude essential consumption next year to prepare for a full economic recession.

Factors that may affect consumption activities next year include continued inflation (46.0%), an increase in interest rates (27.0%), an increase in the tax and utility burden (11.9%), and a contraction in the asset market such as real estate and stocks (8.9%) he noted

Kwang-ho Choo, head of the economic headquarters of the FKI, said, “If low growth of the 1% level becomes a reality next year in a situation where high prices and interest rates continue, there is a risk that the fundamentals of household consumption will deteriorate.”

Reporter Lee Byung-hee


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