[Horitdi Jollaman Gage] Less Card Spending and Consumer Sentiment Drops

Card Approval Amount in Q3 This Year 292 Trillion Won
Growth Rate Plummets from 15.1% to 2.4% in One Year
Consumption Indicators Also Down for Three Consecutive Months Compared to Last Year
"Consumption Capacity Is Unlikely to Recover Immediately"

The shrinking household wallets due to high inflation and high interest rates are clearly reflected in consumption as well. While the growth rate of card sales is slowing down, major consumption indicators are also on the decline.

According to the Credit Finance Association on the 6th, the card approval amount in the third quarter of this year was recorded at 292.6 trillion won, an increase of 2.4% compared to the same quarter last year. Although the amount itself increased, the growth rate is gradually shrinking. The growth rate of card approval amounts decreased quarter by quarter from 15.1% in the third quarter of last year to 8.4% in the fourth quarter, 11.5% in the first quarter of this year, and 4.1% in the second quarter.

The decrease in card approval amounts was due to a decline in vehicle fuel sales and domestic sales volume of domestic passenger cars, despite growth in non-face-to-face and online sales. The Credit Finance Association explained, "Consumer sentiment is in a favorable state due to domestic demand recovery and activation of travel and leisure activities," but added, "The relatively low growth rate continues due to the base effect of last year's increase in card approval performance."

Overall consumption indicators have also noticeably contracted compared to last year. The retail sales index in September showed a 0.2% increase from the previous month. Although it showed a slight upward trend, it shrank by -1.9% compared to the same month last year. This marks three consecutive months of decline following -1.4% in July and -4.7% in August. In particular, consumption of semi-durable goods such as clothing, shoes, and bags decreased significantly by -7.9%.

Kim Bo-kyung, Economic Trend Statistics Officer at Statistics Korea, explained, "Sales of non-durable goods such as food and cosmetics increased compared to the previous month," but added, "Consumption in the goods sector is at a lower level compared to last year. It should be seen as stagnant."

Plummeting Consumer Sentiment... Frozen 'Household Consumption'

The economy as viewed by consumers is also cooling sharply. The Consumer Sentiment Index released by the Bank of Korea was 98.1 last month, down 1.6 points from 99.7 the previous month. A consumer sentiment index below 100 means that consumers' perception of the economic situation is relatively poor. All components of the Consumer Sentiment Index?Future Economic Outlook Index (70), Current Economic Conditions Index (64), Living Conditions Outlook Index (90), Current Living Conditions Index (88), and Household Income Outlook Index (98)?were below 100.

The Consumption Expenditure Outlook Index was 113, exceeding 100 and rising by 1 point compared to the previous month, reflecting consumers' expectation that the amount of money they need to spend will increase due to high inflation. Hwang Hee-jin, head of the Bank of Korea's Statistical Survey Team, explained, "Items that would increase when consumption such as dining out or travel expenses rises significantly have decreased," and added, "Since some respondents expect higher spending due to high prices, it is difficult to say that the consumer sentiment outlook has improved."

Consumer sentiment is unlikely to improve in the near term. This is because the high interest rate and high inflation trend is expected to continue for some time. The Bank of Korea has kept the base interest rate steady six times in a row after raising it to 3.5% in January. While expectations are strong that the rate will be held steady again at the monetary policy meeting on the 30th, five of the six Monetary Policy Committee members, excluding Governor Lee Chang-yong, believe that the possibility of further rate hikes should remain open.

Consumer prices also recorded 3.8% last month, marking the third consecutive month in the 3% range, increasing uncertainty in inflation management. This is due to rising oil prices caused by the war between Israel and the Palestinian militant group Hamas and rising agricultural product prices due to abnormal weather. There are even concerns that if the conflict between Israel and Hamas spreads to the entire Middle East region, oil prices could surge sharply in a short period.

Kim Dae-jong, professor of Business Administration at Sejong University, analyzed, "High interest rates are likely to continue until June next year, making it the most difficult period," and added, "Since high interest rates and high inflation have lasted for a long time, consumption capacity will not immediately recover afterward but will recover with a time lag."