As the nation settles into a slow growth economy, alarming bells are chiming in the financial and industrial sectors, as well as in individual households. Many warn that individuals, in particular, must be careful not to repeat spending patterns of the past, since continued heavy spending in a slow growth economy will entrap them in poverty.
According to report released by Statistics Korea on November 29, consumption expenditure per capita in households with an average age of 40-50, the backbone of Korea’s economy, increased 79.4 percent in 13 years, from 411,000 won (US$388.78) in 2000 to 740,000 won (US$700.00) in 2012. In the cited period, their disposable income per capita rose 73.6% to 2,150,000 won (US$2,033.58) from 1,230,000 won (US$1,162.19).
If this spending pattern continues in a slow growth economy, there is a high probability that many will fall into poverty in 10 years.
Debate goes on about whether this slow growth is temporary or signals a long-term recession. But most agree that time cannot be turned back to spark the kind of growth that the country enjoyed in the past.
The salary increase rate was faster than inflation in the 1990’s, as corporate revenues skyrocketed. Buying a house or a property was a good investment, usually yielding 2-3 times the purchase value. Annual growth rate at the time was 6.7%. Between 1997, the year that IMF crisis struck, and 2007, the year that global financial markets collapsed, the growth rate was 4.7%. Growth for the last five years stalled at 3%, which means the nation’s economy entered into the era of an actual zero growth when taking into consideration the annual inflation rates averaging plus or minus 2.5%.