Last year, the government tried every means to boost domestic consumption as exports ceased to play their traditional role of driving economic growth. It had to execute an 11 trillion-won supplementary budget to fuel domestic demand, as the outbreak of Middle East respiratory syndrome stifled consumer spending.
The government also organized a Korean version of Black Friday, a 15-day shopping promotion campaign aimed at stimulating domestic consumption and attracting shoppers from abroad.
Thanks to these efforts, household consumption rose 2.7 percent from 2014, totaling 708.4 trillion won. But the increase in consumer spending was not large enough to offset the negative impact that a sharp decline in exports had on economic growth.
While policymakers racked their brains to expand domestic consumption, affluent Korean consumers were spending more overseas than ever before. Central bank data shows that Korean residents’ overseas consumption soared 13.7 percent last year to reach a record high of 26.27 trillion won.
The figure did not include Korean consumers’ online purchases of foreign goods and the overseas expenses of Korean businessmen.
It is disturbing that Korean households’ overseas consumption increased more than five times faster than their domestic consumption last year.
The data suggests that Korean consumers remained tight-fisted at home, despite the government’s stimulus efforts, while they dipped into their pockets overseas. If they had switched at least part of their overseas spending to domestic consumption, the momentum of the economic recovery would have been stronger.
The main reason for the jump in overseas consumption was a great surge in the number of outbound tourists. Data from the Korea Tourism Organization shows a total of 19.3 million Koreans went abroad last year, a 20.1 percent jump from 2014.
The problem is that foreign tourist arrivals did not increase at the same pace. In fact, the number of foreign visitors shrank 6.8 percent last year, the first drop in 12 years.
Foreign tourists’ expenditures also fell 7.4 percent last year, widening Korea’s deficit in the travel account from 7.6 trillion won in 2014 to 11.9 trillion won.
The surge in outbound tourists and overseas consumption illustrates a worsening income divide in Korea. Upper and middle class households go abroad more frequently and increase spending overseas, while poorer families stay home and keep their purses closed.
One way to address the problem is to develop the tourism industry. The government needs to enhance tourism infrastructure not only to attract more foreign tourists but to boost domestic tourism.
Local governments are advised to step up their campaigns to attract domestic tourists. Many tourist attractions are shunned by Korean tourists due to the lack of promotion.
The central government also needs to find measures to induce affluent households to reduce overseas trips and increase domestic travel. More than 1 million Koreans go abroad to play golf annually. Curbing their overseas trips alone would boost domestic consumption by trillions of won each year.