South Korea’s central bank has warned that a significant decrease in US stock prices, akin to the dot-com bubble burst, could lead to a sharp decline in US consumer spending. The Bank of Korea (BOK) highlighted that a 10% drop in US equity prices might result in a 0.3 percentage point reduction in annual consumption growth, with a 30% plunge potentially causing a 1.7 percentage point decrease.
According to the BOK report, US households are facing risks related to purchasing power due to inflation and labor market conditions. The report emphasized that the US economy’s stability is increasingly reliant on stock prices and spending by high-income households, making it vulnerable to sudden shocks.
The BOK also expressed concerns about the widening income and asset disparities among US households, which could amplify the economy’s susceptibility to unforeseen economic downturns. Given South Korea’s heavy reliance on US investment in artificial intelligence (AI) and household demand, the BOK stressed the importance of closely monitoring these risk factors to safeguard its economy.
In response to the challenging economic conditions, the central bank announced the extension of a financial support program for small and medium-sized enterprises (SMEs) and self-employed individuals. The Bank of Korea’s low-rate special loan program, initially valued at 14 trillion won (US$9.51 billion), was scheduled to end but will now be prolonged by six months until the end of July to aid the sluggish recovery in vulnerable sectors.
