66% of Trade Surplus Spent Overseas

It was found that two-thirds of the earnings from exports and imports in the first half of this year were spent abroad on overseas trips and tuition fees.

The rise in consumption, the main driver of the government’s economic growth measure, in fact was concentrated on overseas spending, putting a halt to the economic chain of “consumption rise -> expanded domestic investment -> job creation -> income expansion -> consumption rise.”

Because of this, the government is even urging the public to constrain its spending abroad, worried that such overseas spending sprees will result in “the black hole” of the Korean economy.

Snowballing Deficits in Service Balance-

The service balance deficit in the first half of the year rapidly increased due to increased overseas trips and overseas tuition fees.

According to the report released by the Ministry of Commerce, Industry and Energy titled, “Export and Import Trends in Service in the First Half of the Year,” the service balance deficit from January to June amounted to $8.88 billion, an increase of 42.3 percent from the same period last year.

The service exports increased by 10.6 percent to $24.47 billion while the imports increased by 17.6 percent to $33.35 billion.

The “main culprit” behind such deficit was expectedly the overseas trips.

The trip service deficit due to tourism, overseas study, and language training amounted to $5.79 billion, which increased by 28.4 percent ($1.28 billion) compared to the same period last year.

Among them, the money spent by Korean nationals for overseas trips, study and language training reached $8.43 billion (about eight trillion won) in the first half of the year, an increase of 17.2 percent year-on-year.

This is 66 percent of the product balance surplus, amounting to $12.9 billion from exports in this first half. In terms of the domestic economy, this means that out of the hard-earned $100 from selling goods abroad, $66 was spent on overseas trips and overseas tuition fees.

In this first half, an average Korean national spent $1,242 abroad, but an average foreigner in Korea spent a mere $895.

Overseas Consumption: the Black Hole in the Korean Economy?-

Cho Won-dong, head of the economic policy bureau at the Ministry of Finance and Economy (MOFE), mentioned two economic phenomena serving as the “missing links” that make things invisible in the Korean economy.

One is that export increases don’t lead to facility investment in Korea. The other thing is that higher consumption doesn’t result in domestic investment and employment.

Of these, the main reason why private consumption increase is not leading to investment and employment is due to the overseas consumption.

According to the Bank of Korea, the rate of increase of last year’s private consumption year-on-year was 3.2 percent in the first quarter (from January to March), 3.0 percent in the second quarter (from April to June), 4.0 percent in the third quarter (from July to September) and 4.2 percent in the fourth quarter (from October to December). Also, the first quarter this year showed a similar increase up to 4.8 percent, reflecting a robust growth.

On the surface, the government is optimistic, saying, “Private consumption drives the economic growth,” but its worries abound.

This is because a closer look at the private consumption would reveal that the domestic consumption increase rate remained merely at the 2.5 percent per year range, while overseas consumption continued a brisk growth of 17.4 percent. In fact, that brings in an analysis that the economic growth as well as its driver, private consumption, was made possible thanks to overseas consumption.

But overseas consumption does not lead to higher investment and employment rates in Korea.

The MOFE presumes that the number of jobs lost to overseas trip consumption amounted to 285,000 last year.

Mr. Cho said, “Despite the government efforts to encourage boosting the domestic service industry for higher consumption at home, there has to be more than that,” adding, “The severity is so high that there is even a need to wage a campaign for the public to possibly restrain themselves from going on an overseas trip.”

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