Korean consumers don’t reap any of the benefits from the economy’s strength. Household debt is at a record-high level. (image credit: Kobizmedia)
SEOUL, Korea, Sep 16 (Korea Bizwire) – We are seeing so many comments by the world’s famous economists and top market analysts that the Korean economy is doing so well. The Wall Street Journal said on August 28, “Korea is the winner amid the emerging market turmoil.” JPMorgan chief economist Michael Feroli also said on September 6 that Korea’s growth pace sets itself apart from the emerging market pack. The Financial Times said on its September 13 news report, “Investors need to pay attention to the undervalued Korean market.”
Even Bank of Korea governor Kim Choong-soo said of his own economy, “There is no other country in the world like Korea that keeps recording current-account surplus consistently” (September 12).
Korea’s economic dynamism is backed up by numbers: KOSPI has recovered to the 2,000 level on September 11. The won value has maintained strength against major currencies. The August export growth rate was 7.7 percent from the same month last year, the highest level since February this year.
But the problem is we consumers don’t reap any of the benefits from the economy’s strength. That’s because household income has not increased in parallel to overall economic growth. Household debt is at a record-high level.
According to the Bank of Korea and the Ministry of Strategy & Finance on September 15, Korea’s second-quarter GDP growth rate was 2.3 percent from the same period last year. This is good news because, although 2.3 percent doesn’t sound a lot, it is a welcome improvement from a 1.5-percent growth during the fourth quarter 2012 and the first quarter this year.
In contrast, the real income growth rate for households for the same quarter was 1.3 percent, from 3.6 percent and 0.3 percent in the fourth quarter 2012 and the first quarter this year. This is only a third of the 2012 yearly income growth rate of 3.8 percent. The difference between official consumer prices and actual prices felt by consumers is also wide. Even though the government-announced consumer inflation rate for the first half was 1.3 percent, the actual street-level consumer inflation rate compiled by Hyundai Economic Research Institute was 5.4 percent.
The same is true for the job market. The jobless number rose by 33,000 in July and 19,000 in August after a reduction by 9,000 in May and June. That’s because the job market was unable to absorb the extra hands made available during the summer vacation.
On September 13, Deputy Prime Minister for Economic Affairs Hyun Oh-seok said in a report to the National Assembly, “Although major indicators show a trend toward gradual improvement, the private sector has not exhibited any signs of robust recovery.” Yoo Byung-kyu, head of the National Economic Advisory Council, said, “This is because the Korean economy has overcome the Asian financial crisis and the global credit crisis through the strength of its export and manufacturing sectors.”
Lim Jin, research fellow at the Korea Institute of Finance, said, “The fruit of economic growth is not going to the household sector, especially those workers engaging in domestic consumption and services segments.” “To address this imbalance, the government needs to introduce measures creating good, well-paying jobs for the household and relax regulations.”
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