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1 out of 5 middle-class households is in deficit

Posted May. 28, 2024 08:02,   

Updated May. 28, 2024 08:02


In the first quarter of this year, one in five middle-class households was found to be ‘living in deficit,’ spending more than they earned. According to Statistics Korea's household trend survey, the deficit ratio for households in the top 20 to 40 percent income quartile was 18.2%, up 3.4 percentage points from the previous quarter. Additionally, 17.1% of households in the top 40 to 60 percent income quintile could not escape the deficit. This indicates that the prolonged economic downturn is tightening the lives of the low-income and middle classes, the backbone of our society.

The difficulty in escaping a negative financial state stems from the significant increase in necessary expenditures due to high inflation and high interest rates, while income has not kept pace. Average monthly household expenditures in the first quarter increased by 2.5% compared to a year ago, but household income increased by only 1.4% during the same period. Considering the 3% inflation rate, real income decreased by 1.6%, showing the largest decline in seven years as of the first quarter. While income is stagnant, there are limits to how much households can tighten their belts. The prices of food and non-alcoholic beverages, which are essential, have risen 7.2% in one year, and the average monthly interest cost has increased by 11.2% compared to a year ago due to high interest rates.

In the first quarter of this year, the Korean economy experienced a surprising growth of 1.3%, and domestic and foreign organizations are raising their growth forecasts for this year. However, the economic situation felt by the middle and working classes is still harsh. Although exports have been showing signs of recovery for seven consecutive months, this has not led to a recovery in domestic demand due to constraints from high interest rates. Inflation, which is a prerequisite for an interest rate cut, remains high. Quality jobs, which are a source of stable income, are also not increasing.

This month, the government removed the name ‘emergency’ from the weekly ‘Emergency Economic Minister’s Meeting’ and changed it to ‘Economic Minister's Meeting.’ However, the reality of the Korean economy makes it difficult to declare a normal state. Excluding the base effect, exports that rely solely on semiconductors are not yet recovering quickly, and the possibility of a downturn in the export economy in the second half of the year cannot be ruled out. The financial capacity needed for economic recovery and mid- to long-term tasks is also shrinking. The government must prioritize price stability and reexamine its overall economic policy to ensure that people's lives can be substantially restored. Now is a time when an even more extraordinary attitude is needed.