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The spread of the novel coronavirus infection (Corona 19) is estimated to have led Korean families to cut spending and significantly increase their savings this year. Families, worried that the crisis would continue, increased their savings.
Increased savings could lead to large-scale consumption in the future, but there are also fears that a prolonged crisis could limit consumption and lead to the fixation of low growth, low inflation and low interest rates.
The household savings rate is expected to be the highest in the last 20 years
Korea’s annual net savings rate of households. Graphic = Reporter Song Jeong-geun
Researchers from the Bank of Korea Research Bureau have estimated that “the household saving rate could reach about 10% this year due to the 19 Crown shock” through “the possibility of an increase in the household saving rate due to of the 19 “Crown crisis that the BOK released on the 29th. This is higher than last year (6.0%) and the average of the last five years (6.9%). The last year that the annual household savings rate exceeded 10% was 1999, which means that the highest savings rate is expected in 20 years.
The high savings rate was expected because household income increased this year compared to last year, but consumption dropped significantly. Households’ nominal disposable income is estimated to increase by around 2% over last year, while private consumption will drop significantly to around half of 3%. Although the government has provided large-scale relocation income to families for families suffering from the Corona 19 spread, the family has not consumed properly due to Corona 19.
Major overseas countries suffering from slow consumption due to Corona 19 are also expected to achieve high household savings rates. Unlike Korea, which calculates household saving rates every year, the United States discloses monthly savings rates and the Eurozone reports quarterly savings rates. The household saving rate in the United States rose from 7.5% last year to 25.7% in the second quarter of this year and from 12.9% to 24.6% in the euro area.
If the preliminary savings are fixed, “long-term low growth” could occur
As the number of meetings decreased due to the spread of Corona 19, the streets of Myeongdong, Seoul on the morning of 29 are showing a hectic look. This year, the saving rate of households in Korea is expected to rise sharply due to unintended restrictions on consumption. yunhap news
If the spread of infectious diseases subsides, there is a chance that the savings rate will return to its original level when consumption, which had been suppressed by strengthening distances, has been resumed. In fact, the household saving rate in the United States dropped to 14.3% in the third quarter as consumption resumed.
However, if Corona 19 continues, the story will be different. The researchers estimated that involuntary consumption constraints were in the initial range of 2% of the increase in the household saving rate by about 4 percentage points. The rest could be “pre-saving” in which households voluntarily increase their savings based on economic uncertainty.
Preliminary savings appear in every economic crisis. This is because families are looking to make extra money, fearing that their income will shrink due to future anxiety. Currently, government support, which increased significantly in the second quarter, is expected to gradually decline and there is a possibility that savings will continue to increase in the future without resolving the weakness in employment and household income.
In the past, the high savings rate has acted as a factor in increasing the productivity of the entire economy by increasing corporate investment resources. However, even companies are now in a position of reduced investment and increased savings due to uncertainty. In this situation, the high savings rate is a burden on the Korean economy rather than good news.
The researchers said: “If the high savings rate is fixed, there is a possibility that slow household consumption will be prolonged,” the research team said. There is also the possibility of becoming a (new standard). “
Hyunwoo In reporter [email protected]
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