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This year’s household savings rate is expected to rise to its highest level since 1999.
The increase in the household saving rate has a positive effect, but if the increase solidifies, it can have negative effects such as a slowdown in consumption.
Lee Chae-hyun, manager of the Bank of Korea Investigation Bureau, and Lee Chae-hyun, researcher at Bank of Korea’s Investigation Bureau, diagnosed the possibility of an increase in the level of household savings due to the new coronavirus infection crisis. (Crown 19).
The household saving rate peaked at 23.9% in 1988, and then dropped sharply until the mid-2000s due to changes in the structure of consumer spending and the expansion of pension systems. In 2002 it fell to 0.1%.
When the economic crisis occurred, it temporarily increased sharply, but in the aftermath of the financial crisis it increased dramatically from 13.1% in 1997 to 20.4% in 1998.
As a result, the BOK predicted that consumption could contract in the short term after the spread of Corona 19 and the household saving rate could rise to around 10%. This is 4 percentage points more than last year (6.0%). 1999 (13.2%) was the last time that the annual savings rate of households exceeded 10%.
Manager Lee said: “The increase in the household savings rate this year is due to the contraction in the consumption of personal services due to the strengthening of social distances, etc.”, he said.
Unlike Korea, which is released every year, the savings rate in the United States, which is released every month, rose to 33.6% in April, when restrictions on movement were tightened, and dropped to 14. 3% in September.
However, if the Crown crisis 19 continues, the saving trend of households could remain high due to a decline in expected income in the future and increasing restrictions on lending.
“The increase in the household saving rate can lead to a prolonged slowdown in consumption and weaken the effect of the increase in domestic demand from macroeconomic policies”. “He said.
He added: “There is a need for political efforts to alleviate structural factors such as the deterioration of household income conditions which can lead to an increase in the household savings rate and fixation.”