[Economy] Riddles of the Korean Economy |
There is no shortage of optimistic outlooks for the local economy as indicators are pointing to the recovery of Asia's fourth-largest economy. Such rosy economic views, however, have yet to lead to consumers opening up their wallets, an irony which raises questions about what is really going on behind the numbers. -- ED.
Earlier this year, the government forecast that the economy will grow 5 percent for 2006, higher than the previous year's estimated 4 percent. The optimistic forecast has been bolstered by the quarter-on-quarter economic growth of 6.5 percent during the first three months of this year.
The rosy outlook and the better-than-expected economic performance, however, have failed to lead to consumers spending more. Experts explain that many consumers still remain reluctant to open their wallets because of concerns their income might be squeezed by outside factors such as higher oil prices and a rise in the local currency against the U.S. dollar in the second half of the year.
This sluggish consumer demand contrasts with what the Bank of Korea (BOK) has expected, experts noted. In its recent report, the BOK said that domestic demand, one of the driving forces behind the economic growth, expanded 1.2 percent in the first quarter from a year earlier, accelerating from the previous quarters.
"Domestic demand will likely take up more in the nation's economy," the central bank said in the report. "The recent improvement in domestic consumption will give a boost to a recovery in the economic growth down the road.
The BOK's report on domestic demand is also consistent with several other consumer indicators such as credit card use, department store sales and demand for durable goods.
Industry data showed that consumption through credit cards reported 17-18 percent of monthly growth during the first quarter, compared with a single-digit gain a year ago.
Monthly sales of cars sold in the domestic market also grew 9.7 percent in March from the same period of the previous year, breaking the 100,000-unit mark for the first time this year.
The figures, however, did not lead to a recovery in consumer spending as income growth has failed to keep up with the improvement in such economic indicators, experts say.
Gross national income (GNI), a measure of real consumer spending, for example, edged down 0.1 percent during the first quarter from the three months earlier.
Compared with the same period of the previous year, the GNI is well below the growth of gross domestic product (GDP), which stood at 6.2 percent in the first quarter, the largest gap ever since the central bank traced down those figures, government data showed.
The comparison between GNI and GDP shows that income generated from production have failed to translate into an improvement in real purchasing power among consumers as such unfavorable factors as higher oil prices remain in place as a drag on consumption.
Another reason for the sluggish domestic demand is the deepening gap between the haves and haves-not, experts noted.
A separate BOK report showed that the consumer sentiment index for those who earn over 3 million won monthly was 93 during the first quarter, while the corresponding figure for those who earn less than W1 million stood at 69.
Kim Seong-jae
