Could US Consumption See a Decline Similar to the Dot-Com Bust?
Click to start listening
Synopsis
A potential plunge in US stock prices reminiscent of the dot-com bubble may drastically reduce consumer spending. The Bank of Korea highlights the implications for both the US and South Korean economies, emphasizing the need to monitor these risks closely. Will the economy withstand such shocks?
Key Takeaways
- A sharp decline in US stock prices could significantly reduce consumer spending.
- A 10% drop in stock prices may decrease annual consumption growth by 0.3 percentage points.
- A 30% drop could result in a 1.7 percentage point fall in consumption growth.
- Income inequality may increase vulnerability to economic shocks.
- The BOK will extend financial support for SMEs amid economic uncertainty.
Seoul, Jan 16 (NationPress) A significant decline in US stock values, akin to the downfall of the dot-com bubble, could lead to a considerable reduction in US consumer expenditure, South Korea's central bank highlighted on Friday. It also indicated that a similar situation could inflict substantial damage on the local economy.
A recent analysis by the Bank of Korea (BOK) regarding U.S. consumption suggests that a 10 percent drop in US equity values would diminish annual consumption growth by roughly 0.3 percentage points, as reported by Yonhap news agency.
In the event of a more drastic fall of approximately 30 percent, comparable to the burst of the dot-com bubble, consumption growth could plummet by up to 1.7 percentage points, according to the report.
The BOK noted that U.S. households are facing challenges to their purchasing power due to inflation and labor market conditions, while consumer spending has increasingly become reliant on fluctuating stock prices and expenditures by affluent households. "In these circumstances, the risk of a significant downturn in the U.S. economy would heighten if a shock occurs," the BOK stated.
It also pointed out that while U.S. household purchasing power is anticipated to rise steadily, notable risks associated with employment and inflation are still prevalent.
The BOK expressed concern that expanding income and asset inequality among households could increase susceptibility to economic shocks.
"Given that the South Korean economy is significantly impacted by U.S. investments in artificial intelligence (AI) and household demand, it is essential to keep a close watch on these risk factors," the report added.
Additionally, the central bank announced plans to extend a financial assistance program for small and medium-sized enterprises (SMEs) and self-employed workers in light of a sluggish recovery in vulnerable economic sectors.
The Bank of Korea's low-rate special loan initiative, valued at 14 trillion won (approximately US$9.51 billion), was set to conclude this month but will now be prolonged by six months until the end of July, according to bank officials.
Point of View
I believe this report from the Bank of Korea underscores significant vulnerabilities in consumer spending linked to stock market volatility. The interdependence of economies is evident, and South Korea must remain vigilant about external economic shocks.
NationPress
16/01/2026
Frequently Asked Questions
What could trigger a decline in US consumer spending?
A sharp drop in US stock prices, similar to the collapse of the dot-com bubble, could lead to reduced consumer spending.
How does the Bank of Korea view the current economic situation?
The Bank of Korea warns of potential risks to U.S. household purchasing power due to inflation and labor market conditions.
What impact could this have on South Korea?
The South Korean economy, heavily reliant on U.S. investments, may face serious setbacks if U.S. consumer spending declines.
