The semiconductor market boom is projected to drive a recovery in private consumption next year, supported by corporate performance bonuses, dividend payouts, and expanded government household support. However, high household debt, sluggish construction activity, and potential stock market corrections remain key hurdles to this recovery.

According to the Bank of Korea's (BOK) issue analysis report titled "Assessment of Economic Conditions (October 2026): Review of Conditions for Future Private Consumption Recovery" released on the 24th, the positive spillover effects of the semiconductor sector's strength are expected to spread to households, gradually broadening the recovery momentum of private consumption next year.

While private consumption has maintained a recovery trend since hitting a low in the first quarter of last year, the extent to which this recovery has spread across various product categories and income brackets remains limited. In the first half of this year, consumption of services, non-durable goods, and semi-durable goods was solid, whereas durable goods and overseas consumption remained relatively sluggish. The strength of the recovery also softened somewhat entering the third quarter.

The BOK identified corporate performance bonuses, dividend payouts, expanded government transfers, and improved purchasing power driven by a falling exchange rate as key factors that will bolster consumption recovery.

The total volume of special performance bonuses from major industries such as semiconductors, automobiles, and shipbuilding is estimated at approximately 60 trillion to 70 trillion won. As bonus payouts begin in earnest early next year, consumption among recipient households is expected to increase. The BOK estimates that for every 1 million won increase in temporary income, consumption rises by about 110,000 won. In particular, this is anticipated to have a positive impact on durable goods and leisure service consumption, which had experienced slower recoveries.

Dividend payouts by semiconductor firms are also cited as a factor driving consumption expansion. These dividend effects are expected to center primarily on discretionary spending by high-income households, who hold a larger share of stocks. However, given the broadened base of stock ownership, the spillover range of consumption may expand compared to the past.

The expansion of government transfer payments to households is expected to enhance the spending capacity of middle- and low-income brackets. This is because increased corporate tax revenues resulting from improved earnings at semiconductor firms can translate into expanded household support. The BOK analyzed that if support is concentrated on middle- and low-income households with a high marginal propensity to consume, the consumption-boosting effect will be greater.

A declining exchange rate also serves to enhance household purchasing power. It is estimated that a 10% fall in the won-dollar exchange rate improves the real purchasing power of households by approximately 0.35%. The effect of this purchasing power improvement is expected to be relatively larger for low-income households, who allocate a higher proportion of their income to consumer spending.

Nevertheless, risks constraining the consumption recovery still remain. High household debt and principal-and-interest repayment burdens limit spending capacity, while sluggish residential construction can depress demand for durable goods such as home appliances and furniture, as well as weigh on employment and income in the construction sector. Furthermore, should the stock market undergo additional corrections or expectations for a stock price rebound weaken, wealth effects and consumer sentiment could deteriorate.

The BOK projects that the effects of bonus and dividend payments will be concentrated from the fourth quarter of this year through the first half of next year, while expanded government transfers and a falling exchange rate will also contribute to consumption recovery. At the same time, the central bank diagnosed that it is necessary to closely monitor structural constraint factors, such as household debt and sluggish construction activity, as the recovery trend spreads across households overall.

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