Does Higher Card Use Suggest Rising Consumption?

Korean consumers are whipping out their credit cards again amid growing expectations over economic recovery. The amount of plastic money used last month was the highest this year, so optimism is rising over recovery in domestic consumption.

Many experts, however, warn that it is premature to expect a recovery because major economic indexes such as exports and employment remain sluggish.

The Credit Finance Association yesterday said domestic consumers spent 27.46 trillion won (22.06 billion U.S. dollars) last month, up 8.66 percent year-on-year and 3.9 percent higher than in April.

The monthly increase in credit card spending had maintained double-digit growth since October 2007. Growth, however, fell to single digits in November last year amid the global economic crisis.

The increase rate hit bottom at 3.89 percent in January before rebounding to 6.67 percent in February, 6.22 percent in March, and seven percent in April.

Inflation slowed to 2.7 percent last month after ranging between 3.6 and 4.1 percent in the first four months of this year, so the increase in credit card spending does suggest brisk consumption.

“Credit card use is seeing a revival after its huge slump in the aftermath of the economic crisis,” an association source said. “But it is hard to expect a big increase in card spending due to uncertainty over recovery.”

Higher sales at department stores and brisk sales of cars, the barometers for domestic consumer spending, also attested to higher card use.

Shinsegae Department Store saw sales rise 8.1 percent year-on-year last month, while Korean carmakers sold 124,442 vehicles, up 15.3 percent from the same month last year and 31.7 percent higher from April.

Kwon Soon-woo, head of macroeconomic research at Samsung Economic Research Institute, said, “While economic indicators such as employment and investment are slowly recovering, consumer sentiment is rapidly improving. But consumer sentiment could slow again if the economy does not revive as quickly as expected.”

imsoo@donga.com