August 23, 2013 / 3:01 AM / 4 years ago

S.Korea Q2 disposable income grows for 9th quarter, spending weak

SEOUL, Aug 23 (Reuters) - South Korean households’ disposable income grew for a ninth consecutive quarter in annual terms during the April-June period, data showed on Friday, but consumption continued to fall as they dealt with heavy debt and an uncertain outlook.

The average South Korean household saw disposable income rise by a real 1.0 percent during the second quarter from a year earlier, Statistics Korea said in a statement, picking up from a 0.3 percent rise during the January-March period.

South Koreans’ disposable income -- total income minus spending on non-consumption items such as tax -- has continued to grow on an annual basis, after adjusting for inflation, as the economy continued to add jobs despite the recent slowdown.

Household spending on consumption fell by 0.4 percent during the second quarter from a year earlier despite the income growth, however, marking the fourth consecutive quarter of decline -- albeit at a slower rate than the 2.4 percent seen in the first quarter.

The data suggests that South Korean households continue to conserve cash in an attempt to reduce their debt and guard against still-uncertain prospects for the global and local economy.

South Korean households’ leverage problem has been well documented, with many struggling with the falling value of their homes in a slumping property market.

The gross household debt to gross disposable income ratio was 153.4 as of 2012, according to the Organisation for Economic Co-operation and Development, well above the organisation’s average of 121.3.

Though a reduction in household debt will ultimately benefit the country’s economic fundamentals, continued weakness in private consumption will constrain growth in the immediate period as the trade-dependent economy awaits a firm pick-up in external demand.

The Bank of Korea expects the South Korean economy, Asia’s fourth largest, to grow 2.8 percent this year, accelerating from 2 percent seen last year. But analysts say such growth would still be below the economy’s potential growth rate, estimated to be around 4 percent.

The Bank of Korea’s composite consumer sentiment index stood at 105 in July, holding steady from June, suggesting that South Koreans remain optimistic about future economic and living conditions.

But government data also showed that July’s sales at both the country’s top department and discount store chains fell in annual terms for the first time in three months.

Reporting by Se Young Lee; Editing by Eric Meijer

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