Chip boom fails to lift spending as private consumption falls
Ideas
The Korean economy was built on the premise of a few big companies that can lead the economy with exporting which it has been doing for a very long time. While it works for the large Chaebol, for the most part, it doesn't work for many Korean households and the benefits don't trickle down to the rest of society but remain with the Chaebol.
For example only about 10 to 12 percent of the workforce in South Korea work for the Chaebol while the other 80 to 90 percent work for small and mid-size companies that don't pay anything near what the Chaebol pay. For example Chaebol workers make almost twice the amount that small company workers make and it's the largest gap among OECD countries.
And as a result consumer spending South Korea just isn't where it should be as the average South Korean household just doesn't have the disposable income that the Chaebol households do.
But some might say all is well in South Korea with its booming tech economy and its booming foreign tourist arrivals, who spend a lot, is only part to the story as what is happening in South has been going on for a long time and potentially it sounds OK but if there is slow down in chips or AI demand the South Korean economy could be in real trouble.
Yes, the economy at times, will see spurts of growth but even at 1 percent for the third quarter there is still a lot of improvement for growth but it might be able to do much more than that in the future.
And yes, again, spending or a lot of spending seems to be limited to either the Chaebol households and or foreign tourists taking advantage of the weak Korean won which gives them more purchasing power at the major shopping shopping areas such as the COEX mall, Myondong shopping area, the Kangnam shopping road area, and maybe Honddae where a lot of young shoppers like to go to.
Weak private spending or consumer spending has been a challenge for the South Korea economy for a very long time as for example, many households are consrained by huge debts from credit card spending and or from huge housing or mortgage housing payment which means the have little disposable income to spend in the economy these days.
And then add in the private school spending or after school spending on what is called hagwons, by families with children, which can run in the millions of won each month or year which places even more consraints on South Korean household spending.
Also, yes the aging population situation is another major problem as for example both Japan and South Korea, depending on the year, are number 1 and 2 in terms of ageing and its a common fact that older folks just don't spend as much as the younger folks in an economy.
And to make matters even more complicated both Japan and South Korea, again 1 or 2, depending which year you compare, have the lowest birth rates among advanced economies in the world.
And yes, to be positive, there is always a chance that again there could be spurts of consumer spending in a quarter here or there but for the most part its not sustainable over the long term or even for a full year.
A consumer sentiment index of 105.4 is not that bad but what is important is the trend and that seems to be trending down which means consumers in South Korea are less and less happy with their disposable incomes and are choosing to limit their spending.
If you were to look at the major shopping areas as mentioned earlier you might think, again, all is well in South Korea as shoppers/consumers are everywhere out and about shopping and doing a lot of other things such as, for example, if you were to visit a major brand coffee shop in South Korea, you would find most to be full, but most would be with younger shoppers or consumers as again they spend more than older generations and its global situation not just a South Korea young consumer situation.
An index is important but indexes don't tell the real story on the ground or the real lives of households or consumers in South Korea. But they are just a window but you have to look deeper or beyond the window to see what is really happenig in South Korea.
Again, it looks like all is well in South Korea as the Chaebol are all doing good, or for the most part, and Chaelbol families have their own worries as they have to keep up the illusion of being in the right group situation which means they have to spend even more just to stay in the upper income group and it can for some or many of them might feel like periods of limited cash flow which can give them a different kind of stress compared to the rest of society.
And then there is the rest of society in South Korea which again is maybe 80 to 90 percent of most workers who might have of course much lower wages or salaries, huge mountains of credit card debt, huge mortgage payments, and if they are families with children huge monthly hagwon fees to pay which limits their disposable income which means they have less to spend in the economy.
Have a nice day!
Article source: https://www.koreatimes.co.kr/economy/20261027/chip-boom-fails-to-lift-spending-as-private-consumption-fallsSouht
