Data released by the Bank of Korea last week showed the country’s economy grew by 0.7 percent on-quarter during the April-June period of this year.

The figure, which represents a 0.2 percentage point improvement from the previous quarter, is still disappointing for policymakers and economists here, given a range of stimulus measures taken by the government, including those to help boost private consumption.


On-quarter growth of Asia’s fourth-largest economy has remained below 1 percent since the second quarter of 2014, except for the July-September period of last year when it expanded by 1.2 percent.

Many economists see that worsening conditions will add up to further weaken growth momentum in the second half of the year.

The government and the central bank have lowered their initial growth forecasts for this year from above 3 percent to 2.8 percent and 2.7 percent, respectively. But private analysts say the lowered targets may still be beyond reach as private consumption is likely to dampen due to tapering effects of stimulus measures and possible mass layoffs caused by the government-led corporate restructuring.

Domestic consumption made a 0.4 percentage point contribution to the growth in the second quarter of the year, while net exports pushed it down by 0.3 percentage points, according to the BOK data.

Private spending increased by 0.9 percent on-quarter in the three-month period. The increase marked a rebound from a 0.2 percent decline in the previous quarter but fell short of the rise above 1 percent in the third and fourth quarters of last year.

Fiscal expenditure made no contribution to growth in the April-June period after helping boost growth in the previous three quarters by 0.2 percentage points.

“The Korean economy may become stuck in a low-growth rut as its working-age population is set to begin shrinking next year,” said Lee Geun-tae, a researcher at the LG Economic Research Institute.

Economists raise a need to increase spending power of households over the long term as an effective way to bolster the economy.

According to the data from the central bank, the country’s gross domestic income, a key gauge of people’s purchasing power, fell by 0.4 percent from a year earlier in the second quarter, marking the first decline in more than five years.

In recent years, the government has implemented a set of policies aimed at bringing more income to working-class families, though not so successfully. For an example, a measure to impose more levies on cash sitting idly in corporate coffers has resulted in increasing dividends for large shareholders rather than raising wages for employees.

A draft tax code revision for next year, which was unveiled last week, left tax breaks for wage earners intact, despite criticism that it would distort the taxation scheme.

Experts say the government should work out more effective measures to facilitate income transfer to households and accelerate deregulation to foster new industries that can create more well-paying jobs.

A rise in income, however, may still fall short of significantly enhancing household consumption, unless two structural restrains -- growing household debts and costs for private education -- remain unaddressed.

The amount of debts owed by households in the country increased by 11.2 percent over the past year to exceed 1,200 trillion won ($1.07 trillion), due partly to measures taken to encourage home purchases as part of efforts to shore up the economy.

In a survey jointly conducted by government agencies and the central bank last year, more than 70 percent of indebted households said they felt burdened with the repayment of the interest and principal. Of them, nearly 80 percent actually cut down on consumption spending to service their debts.

Household expenditure on private education has also curbed consumption. Experts estimate households in the country pay about 250,000 won on average in monthly private tuition fees per child in primary or secondary school. The total sum paid for a child’s private education until he or she graduates from university is estimated to reach as much as 150 million won.

Economists say policy focus needs to be put on helping relieve the burdens of debt and private education cost weighing on households to ensure Korea’s economy will grow in a more sustainable way over the long run.

By Kim Kyung-ho (khkim@heraldcorp.com)