The Bank of Korea (BOK) assessed that domestic private consumption has entered a full-fledged recovery phase starting this year. The BOK expected this recovery phase to show a gradual improvement trend. Past cases show that in a typical gradual recovery phase, private consumption improves slowly over about three years.
The Bank of Korea said in the Monetary and Credit Policy Report published on the 12th that recent private consumption appears to be showing signs of entering a full-fledged upward phase. Under the Bank of Korea Act, the Monetary and Credit Policy Report is submitted to the National Assembly at least twice a year (Mar. and Sep.) and includes an assessment of the conduct of monetary and credit policy and the state of macrofinancial stability.
According to the Bank of Korea (BOK), there have been five domestic private consumption recovery phases since the 2000s: from the second quarter of 2001 to the second quarter of 2002; from the fourth quarter of 2004 to the first quarter of 2008; from the second quarter of 2009 to the second quarter of 2011; from the first quarter of 2017 to the first quarter of 2019; and from the first quarter of 2021 to the third quarter of 2022.
The recovery patterns were classified into a "post-crisis rapid rebound type" and a "gradual improvement type," depending on drivers and speed. The post-crisis rapid rebound type is characterized by a large amplitude and fast pace of consumption recovery, with an average duration of about seven quarters. In contrast, the gradual improvement type shows a slower recovery pace but lasts for an average of about 12 quarters.
The Bank of Korea (BOK) judged that the recent consumption trend is likely to be closer to past gradual improvement-type recoveries. The gradual improvement type typically features ① a continued easing stance before the recovery phase, ② export growth centered on semiconductors, ③ buoyant asset markets and improved consumer sentiment on expectations of better corporate earnings, and ④ expanded fiscal room for countercyclical measures thanks to higher tax revenue, and current economic conditions are similar. Accordingly, the likelihood has increased that the consumption recovery trend will continue for about 12 quarters, or roughly three years, from this year.
However, the Bank of Korea (BOK) assessed that, compared with the past, the effects of export growth or asset price increases on expanding consumption have weakened. This is because information and communications technology (IT) sectors such as semiconductors, which are driving the business cycle, have a high import dependence and do not generate large employment effects. As a result, households are expected to view the recent economic recovery as a temporary improvement in conditions and, rather than increasing consumption, to boost savings or investment.
The Bank of Korea (BOK) said, "Although a gradual improvement-type recovery phase is expected to begin this year, given that the transmission channel from improved conditions to consumption has weakened, the pace of future consumption growth will be more moderate than in past gradual recovery phases."