Korean household income outpaces spending for second straight quarter

Korean incomes rose in the fourth quarter of 2024, but spending lagged due to inflation and economic sentiment.

Passengers wait to pass through customs at Incheon International Airport on Feb. 27. Statistics Korea data showed that tourism and entertainment expenses increased in the fourth quarter of 2024 while spending on cars sharply declined. [NEWS1]

Koreans remain hesitant to open their purses, data showed Thursday, as the growth of inflation-adjusted incomes outpaced that of spending for a second straight quarter. The trend reflects the country’s stubbornly weak private consumption, further dampened by a contraction in economic sentiment induced by the Dec. 3 martial law crisis.

The average inflation-adjusted income increased 2.2 percent in the last three months of 2024, according to Statistics Korea data released on Thursday, marking a third consecutive quarter of growth. Nominal incomes rose 3.8 percent from a year earlier to average 5.22 million won ($3,618) per month, extending their uptrend to a sixth consecutive quarter.

Outlays, adjusted for inflation, increased 0.9 percent in the fourth quarter from a year earlier, per Statistics Korea. Nominal spending rose 2.5 percent to 3.91 million won per month during the same period.

Consumption spending — which excludes nonoperational expenses such as taxes, insurances and interest payments — rose 2.5 percent from the same period a year earlier to 2.9 million won.

The 2.5 percent growth in consumption was its mildest since the first quarter of 2021, when the Covid-19 outbreak slowed the figure to 1.6 percent.

Entertainment and cultural expenses such as tourism, which increased 11.1 percent, housing and utilities, which jumped 7.5 percent, and food and accommodations, which rose 5.1 percent, led the expenditures. On the other hand, spending on transportation — including cars — dropped by 9.6 percent while furniture and home-related services and products fell 3.7 percent and phone bills slid 2.4 percent.

The quarter was the second in a row in which the growth of income outpaced that of consumption, both before and after adjusting for inflation. The numbers indicate that “People are spending less compared to what they earn,” according to Lee Ji-eun, director of short-term household income and expenditure statistics division at Statistics Korea.

Rising housing costs primarily drove the increase, with December's short-lived martial law declaration and the ensuing political unrest also playing a role.

Lee Ji-eun, director of the short-term household income and expenditure statistics division at Statistics Korea, speaks during a press briefing at the Sejong government complex on Feb. 27. [NEWS1]

Disposable income, calculated as monthly income minus nonconsumption spending, rose 4 percent to 4.21 million won. As such, the average consumption propensity — or the ratio of consumption spending to disposable income — decreased by 1.1 percentage points from the previous year to 69 percent in the fourth quarter.

Notably, high-income households have grown more hesitant to spend compared to their income, as the average consumption propensity of those in the top 20 percent income bracket dropped 2.8 percentage points to 55 percent while that of the bottom 20 percent rose 4.3 percentage points to 133.6 percent. That of middle-income households — those in the 60 percent to 40 percent range — increased 3 percentage points to 78.5 percent.

On a yearly basis, consumption spending rose by 3.5 percent from the previous year to 2.89 million won per month on a nominal basis and by 1.2 percent when adjusted for inflation.

Amid persistently sluggish domestic demand, the Bank of Korea sharply downgraded its growth projection for 2025 from the previous 1.9 percent to 1.5 percent on Tuesday.

In its updated growth outlook, the central bank that estimated private consumption would expand 1.4 percent this year, down from its initial projection of 2 percent, while also cutting its export growth projection from the previous 1.5 percent to 0.9 percent.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]