Photographer: SeongJoon Cho/Bloomberg

South Koreans Cut Spending as Household Income Growth Slows

South Korean household income grew at the slowest pace on record last year and spending fell for the first time, underscoring the challenge facing policy makers as they try to ignite a sluggish economy.

Households’ average monthly income increased 0.6 percent in 2016 from the previous year to 4.4 million won ($3,884), the smallest gain since the statistics office began compiling the data in 2003. Consumption expenditure dropped 0.5 percent, with larger drops seen in transportation and clothing expenses, data from the statistics office showed on Friday.

The weakness in household income reflects slowing growth amid a political scandal that has led to the impeachment of President Park Geun-hye. The situation worsened in the fourth quarter, when the scandal erupted, with income growth slipping to 0.2 percent from a year earlier and spending falling 3.2 percent. Korea’s economy expanded 0.4 percent in the fourth quarter from the previous quarter, the slowest pace in more than a year.

While exports are faring better than expected as the global economy strengthens, consumption is falling short of forecasts and sentiment remains poor, the Bank of Korea said on Thursday. The central bank sees the economy growing 2.5 percent this year, the slowest pace since 2012.

Read more: Bank of Korea Holds Key Rate as Exports, Inflation Improve

The tepid income growth last year was due to “job growth slowing on a delay in the economic recovery and corporate restructuring,” the finance ministry said in a separate statement on Friday.

Household spending as a percentage of disposable income, excluding items like taxes and pensions, fell to 71.1 percent, also the lowest on record going back to 2003.

“Spending is typically large for households with children, and the low birth rate and aging are factors we see as decreasing consumption,” Kim Bo-kyoung, an official at the statistics office, said in a briefing in Sejong.

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