Brisk sales of passenger cars have led South Korea's domestic consumption in the February-May period on the back of the government's tax-cut programs, government data showed Sunday, raising concerns over a possible drop in demand following the end of such benefits.

The South Korean government started the excise tax benefits from September last year to bolster retail sales, along with nationwide discount events to offset faltering exports, which have posted negative growth since January last year.


On the back of the government-led consumption-boosting measures, private consumption has been on the upswing since the fourth quarter of last year.

The tax program initially ended last year, but the government extended it to June in order to fuel domestic demand further.

According to the data compiled by Statistics Korea, retail sales jumped 3.2 percent on-year in February, when the second-round of the tax program resumed, but the figure moves down to 2.5 percent if passenger car sales are not counted.

Reflecting the importance of cars, in May, passenger car sales contributed 2 percentage points to a 5.1 percent on-year gain in overall retail sales.

At the same time, the country's sales of passenger cars jumped 8.3 percent to 637,369 units from a year earlier for the first six months of the year.

Experts are worried that private consumption may face a sharp contraction in the second half as the excise tax cut program was halted last month.

"The government came up with other incentives, but they are not enough to push up consumption further," said Joo Won, a senior analyst from Hyundai Research Institute.

Last week. the government released a set of stimulus measures including a 10 trillion won ($8.71 billion) supplementary budget to buttress Asia's fourth-largest economy in the face of waning exports and rising uncertainties fueled by the British vote to leave the European Union, or Brexit.

"Those are short-lived policies to boost consumption," said the researcher. "But we need more fundamental solutions that have the economy get out of the prolonged slump and help increase people's income." (Yonhap)