'The Harder It Got, the More Wallets Closed'... Last Year's Households Achieved Record High 'Recession-Type Surplus'

[Sejong=Asia Economy Reporter Son Seon-hee] Despite the severe economic difficulties caused by COVID-19 last year, household finances recorded the highest surplus ever. This is the result of drastically reducing expenditures during the economic crisis, so-called a 'recession-type surplus.'

According to the Household Trends Survey by Statistics Korea on the 22nd, the household balance surplus rate (surplus ratio) surveyed nationwide on about 7,200 households (two or more persons) last year recorded 32.9% in the first quarter, 32.3% in the second quarter, 30.9% in the third quarter, and 30.4% in the fourth quarter. Last year was the first time since related statistics began in 2003 that the annual household surplus rate consistently maintained over 30%.

The significant rise in the household surplus rate is analyzed to be due not to increased income but to a sharp contraction in spending during the economic recession phase. Although the household surplus amount increased, the average propensity to consume, which shows the proportion of consumption expenditure in disposable income, recorded a negative value. A Statistics Korea official explained, "While disposable income and surplus amount increased, the average propensity to consume showed a decline," adding, "The average propensity to consume by income quintile also decreased across all income levels."

The trend of household propensity to consume depends on future economic conditions. If the recession continues, spending may shrink further due to fears of future income reduction. On the other hand, in an economic recovery phase, accumulated surpluses may lead to explosive 'revenge consumption.' Professor Yoo Kyung-won of Sangmyung University recently stated in a report comparing "Consumption expenditure patterns during past economic crises and the COVID-19 spread period," "When a crisis occurs, households tend to reduce consumption more than income," but also predicted, "The economic movement will vary depending on how the contracted consumption and savings manifest amid increased liquidity and asset market overheating during the COVID-19 response process."