Tightened Wallets

As people tighten up their spending by large amounts, the total savings rate during the first quarter of January to March this year was revealed to be the highest it has been in six years.

On the contrary, the total investment rate decreased because the amount saved was not directed to actual investments.

According to the report, “Interim Estimation Result of National Income” released by the Bank of Korea (BOK) on June 11, the total savings rate during this year’s first quarter was 31.5 percent, rising 3.5 percent from last year’s first quarter savings rate.

This is the highest rate for a first quarter since the 36.2 percent rate in 1998 when Korea was at the height of a financial crisis.

The total savings rate was on a consistent decrease since 1999 in each year’s first period since 1999 (30.8 percent), 2000 (29.8 percent), 2001 (29.3 percent), and 2002 (27.4 percent).

On the other hand, the domestic total investment rate during the first quarter decreased by 1.5 percent from last year’s 17.9 percent to 16.4 percent. This rate had been on the rise, as 2002 showed a first quarter rate of 25.0 percent.

“Disposable income has increased by 8.3 percent during the first quarter of this year compared to last year’s first quarter. However, consumer spending increased only by 3.0 percent, and this gave rise to the increased savings rate,” said BOK’s National Income Team’s Assistant Manager Park Jin-wook. “The reason why the investment rate decreased in spite of the savings rate increase is because the free cash cannot flow properly into actual investments.”

Meanwhile, the nominal GNI (Gross National Income) during the first quarter was 179,201.2 billion won, an increase by 8.3 percent compared to the same period last year.

However, the actual GNI, which shows the buying power of the people aside from inflation effects, was 153,146.9 billion won, an increase by 4.6 percent only.

The actual GNI increase rate did not meet the level of the GDP increase rate of 5.3 percent of the same quarter.

This has derived from the worsened trade terms because of skyrocketed raw material prices including petroleum and the resulting rise of export prices relative to import prices.

The actual trade loss amount caused by worsened trade terms was 7,725.2 billion won in this year’s first quarter.

In addition, the first quarter’s GDP deflator, which reflects the composite price index of the national economy including consumers and producers, increased by 3.0 percent compared to the same period last year due to factors such as oil price increase.

The total savings rate and the total investment rate—

The total savings rate is part of the disposable income of all economic agents such as the individuals, corporations, and the government that was left over after spending. The higher the total savings rate is, the stronger the investment ability in the overall economy becomes. The total investment rate is the rate of domestic investments, sum of construction investments, infrastructure investments, and stock rate increase, as well as other factors, among the disposable income.

Joong-Hyun Park sanjuck@donga.com