As Korean economy stumbles, booze flourishes

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South Korea's economy may be on the brink of a deflationary spiral amid near-zero wage growth, but consumers are still spending big on one item: alcohol.

Drinking among Korean adults rose to a record high in 2014, local media reported on Tuesday citing a new government survey. On average, 60.8 percent of Korean adults drank once or more every month in 2014, up from 54.1 percent in 2008.

The survey matched data in February showing household spending on alcohol hit a record high in 2014.

Asia's fourth-largest economy is well known internationally for its boozy reputation. A report from Euromonitor last year showed Koreans of drinking age consumed 13.7 shots of liquor per week on average, the highest in the world and more than double of what Russians - the second biggest drinkers on the list - consume.

Soju, a distilled rice liquor, is the country's most popular alcoholic beverage and sales are soaring.

Hite-Jinro, a soju maker with 47 percent market share, is one of the industry's top winners. One of the company's brands, Ilpoom soju, saw sales increase nine fold from 2006 to 2013, the Wall Street Journal reported last year. Its Jinro brand was also named the world's best-selling spirit by industry watcher Drinks International last year.

Outside the alcohol industry

South Korea's alcohol sector marks a sharp contrast to other industries depicting lackluster consumers.

"Alcohol seems to be the one consumer sector doing well. It's the ultimate defensive good that tends to do well in both good and bad economic times," noted Wai Ho Leung, economist at Barclays.

Consumer price inflation hit a sixteen-year low last month, intensifying fears that Asia's fourth-largest economy is headed for Japan-style deflation. Annual sales at major department stores dropped 5.4 percent in March, erasing nearly all of February's 6.6 percent increase.

Palcohol
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Economists point to stagnant salaries as the primary culprit for weak domestic spending: annual real wage growth has averaged less than 1 percent over the past decade.

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"Downside risks to Korea's economic outlook persist," said HSBC economists in a recent report. They noted manufacturing conditions deteriorated for the first time in three months, with low demand for Korean goods increasing disinflation pressures and potentially, employment growth.

Government intervention

Korea's high drinking rates led the Ministry of Health and Welfare to enforce a ban on public drinking earlier this year, a move aimed at curbing consumption.

"Soju is really cheap in South Korea at just 3,000 won ($3) for a bottle. People tend to go out to drink almost every day, including women. At the very minimum, drinking is done three times a week" said South Korean native Lim Hyun.

About 1.6 million of South Korea's 50 million population are alcoholics, while social costs stemming from drinking is around 23 trillion won annually, according to the ministry's estimates.