Seoul: A sharp drop in U.S. stock prices similar to the collapse of the dot-com bubble could trigger a steep contraction in U.S. consumer spending, South Korea's central bank said Friday, noting the local economy, too, may suffer serious setbacks should such a case occur.

According to Yonhap News Agency, a recent report by the Bank of Korea (BOK) on U.S. consumption highlighted that a 10 percent decline in U.S. equity prices would reduce annual consumption growth by about 0.3 percentage point. In the event of a sharper drop of around 30 percent, comparable to the dot-com bubble burst, consumption growth could fall by as much as 1.7 percentage points, the report said.

"U.S. households face risks to purchasing power stemming from inflation and labor market conditions, while consumption has become dependent on volatile stock prices and spending by high-income households," the BOK said. "Under these circumstances, the risk of a sharp downturn in the U.S. economy would increase if a shock occurs."

The BOK noted that U.S. household purchasing power is expected to continue to rise at a moderate pace, but downside risks related to employment and inflation remain significant. It also warned that widening income and asset inequality among households could heighten vulnerability to economic shocks.

"As the South Korean economy is heavily influenced by U.S. investment in artificial intelligence (AI) and household demand, it is necessary to closely monitor these risk factors," the report read.