The recent slide in South Korean stocks is delaying a recovery in household spending, the Bank of Korea said.
In an economic outlook report released on the 27th, the central bank said that an analysis of credit card spending by category showed that growth in outlays at department stores and on semi-durable goods, relative to spending on essentials, slowed significantly more than in previous years after share prices began falling in June.
From January through May, when stock prices were climbing sharply, growth in department store and semi-durable spending relative to essentials ran between minus 5% and 5% of the historical average, the BOK said. That rate fell further in June and dropped to near minus 10% in July.
Share prices also corrected more sharply after June in categories with heavy exposure to the stock wealth effect, including department stores, durable goods, semi-durable goods and travel. That pattern suggests the equity decline fed through into weaker consumption.
The KOSPI fell 19.2% from the start of the third quarter through the middle of this month, the sixth-largest quarterly drop since 1995, according to the Korea Exchange. The KOSPI 200 Volatility Index, or VKOSPI, rose above levels seen during the Asian financial crisis and the global financial crisis.
Household equity investment expanded notably this year. Households made net stock purchases of about 150 trillion won from the start of the year through the 20th of this month, far more than in past correction periods. The BOK said households channeled a substantial share of their funds into equities, and the steep correction in share prices may have translated into weaker spending.
"If the market correction persists, it could act as an additional downside factor for consumption with a lag," a BOK official said.
