Household savings will likely hit highest level since 1999: BOK

South Korea is likely to see its household savings reach their highest level in more than two decades, as the prolonged COVID-19 pandemic has driven people away from consumption and investment, central bank data showed Sunday.

A high level of savings may be seen as a positive economic indicator, but may also be cause for alarm over sluggish consumption and negative market sentiment.

Through its monthly research statistics report, the Bank of Korea suggested that the country’s household savings may be increasing as a consequence of the COVID-19 crisis.

“It is possible that household savings may rise to around 10 percent, as consumption remains contracted,” the report said.

The suggested figure, if realized, will be up 4 percentage points from a year earlier and also the first time that the given index will have been in the double digits since 1999.

The household savings level peaked at 23.9 percent in 1988 and drastically turned to a downtrend, reaching 0.1 percent in 2002, reflecting changed consumption trends and an expanded pension system.

The given figure temporarily soared to 13.1 percent in 1997 and 20.4 percent in 1998, when the country was facing the Asian financial crisis.

In the United States, which announces its savings rate on a monthly basis, the figure peaked at 33.6 percent in April amid tightened lockdowns and fell to 14.3 percent in September.

“The steady rise in household savings may lead to sluggish consumption in the long term and possibly offset (the government’s) macroeconomic pump-priming policy efforts,” the BOK said, calling for preemptive measures to prevent this.

By Bae Hyun-jung (tellme@heraldcorp.com)