Korea`s Q2 consumer spending slows to worst level in a decade: report

SEOUL, Dec. 28 (Yonhap) -- South Koreans' consumer spending in the second quarter
sank to the worse level unseen since the 1997-98 Asian financial crisis and
gloomy economic outlooks are expected to offset positive effects of tax cuts, a
report showed Sunday.
Local consumers' spending patten in the second quarter was similar to that of the
fourth quarter of 1997 when private spending sharply weakened as the country was
rocked by the Asian financial crisis, according to a report by the Korea
Institute of Finance (KIF), a private think tank.
"Even if their income increases, consumers would expand savings more than
spending," Park Jong-kyu, a senor researcher at the institute, said in the
report. "In this situation, the effect of proposed tax cuts which benefit
high-income earners would be limited in boosting domestic demand."
The report comes as the South Korean economy grew 0.5 percent in the third
quarter from three months earlier, the slowest expansion in four years as export
growth declined amid sluggish domestic demand.
According to the central bank, consumer spending grew a mere 0.1 percent in the
July-September period and it is estimated to have declined 1.3 percent in the
fourth quarter.
South Korea plans to increase government spending including tax cuts by 14
trillion won (US$10.7 billion) next year as part of efforts to stimulate the
sluggish economy.
The government is aiming to achieve economic growth of around 3 percent in 2009
by expanding fiscal spending. But the Bank of Korea, the central bank, predicted
that Asia's fourth-largest economy will grow just 2 percent next year, down from
an estimated 3.7 percent advance for this year.
"A recovery of consumer spending will only come after overall conditions sparking
jitters for consumers improve," Park said, adding that the government should
implement policies in a timely manner.
sooyeon@yna.co.kr
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