South Korea’s central bank says private consumption will weaken, but not sharply

SEOUL: South Korea’s consumer spending is expected to weaken, albeit moderately, amid high inflation and slowing employment, the country’s central bank said in a research note released Thursday.

“Private consumption recovery is expected to weaken going forward due to slowing real purchasing power growth and rising interest rates,” the Bank of Korea (BOK) said.

“But, the possibility is low that consumption will contract sharply, buffered by accumulated household savings and ‘pent-up’ effects,” he added.

The BOK estimates that a 50 basis point hike in its policy rate would lower private consumption by up to 0.06 percentage point, while widening the total household income deficit by up to 3.2 trillion won ($2.23 billion), according to the report.

He expects a recovery in spending on services to gradually wane, while spending on goods will remain weak, although overseas spending is expected to see a considerable increase as countries’ borders open.

“Nevertheless, it should be warned that private consumption could face greater downward pressure, depending on the speed and magnitude of the rise in interest rates and the global economic slowdown.”

($1 = 1,433.1300 won)