Consumer sentiment falls to 105
Domestic consumption will likely remain sluggish despite the government’s fervid efforts to stimulate the economy, a Bank of Korea report showed yesterday.
The central bank released a report showing its composite consumer sentiment index, which indicates how consumers view the economy, fell 2 points from last month to 105 for October.
The decline in the index suggests that consumer confidence increased slightly after the new economic team led by Finance Minister Choi Kyung-hwan took charge in July, but dropped back to the same level as before, despite the new team’s efforts to revive the economy.
The 105 level is the same as in May, when domestic consumption drastically dropped in the aftermath of the Sewol ferry tragedy.
In August and September, the index stayed at 107.
The index is based on people’s current livelihood, and their estimations of future household revenue and spending. A reading of above 100 means more consumers view their future living conditions positively than those who have a negative outlook.
For October, many consumers had a negative view of their quality of life, and also had pessimistic views about their future revenue growth.
Low domestic consumption is a serious problem for the fourth-largest economy in Asia, which has been in a period of slowed growth since the 2008 global financial crisis.
According to the BOK last week, the Korean economy grew 0.9 percent from July through September compared to the second quarter. Although an improvement from the 0.5 percent reported in each of the first two quarters, growth remained below 1 percent for the fourth consecutive quarter. Annual growth declined 3.5 percent in the second quarter to 3.2 percent in the third.
The mediocre third-quarter performance was a clear indication that the aggressive stimulus campaign pushed by Choi, called “Choinomics,” has had little impact.
The stimulus measures the government has announced over the past few months were aimed at restoring consumers’ confidence, but the latest data showed the measures were not effective. Since taking office, the finance minister has unveiled a set of stimulus measures, including 41 trillion won fiscal plans, calling them “emergency measures to restore self-confidence in the short-term.” In line with the government’s efforts to boost the economy, the central bank cut the key interest rate twice. It is now at 2 percent, the lowest since the 2008 financial crisis.
However, at the four-day parliamentary audit of Choi’s economic team, which ended Monday, lawmakers criticized the minister for the disappointing outcome of the stimulus.
“It is too early to talk about the effect and the government will keep up efforts to achieve the intended objectives,” Choi said at the audit.
Some lawmakers attacked Choi, saying his “Choinomics” plan, which included eased mortgage regulations, has added to rising household debt.
In his defense, Choi said that although the household debt has grown, the chance of it turning into a systematic risk is low.
Considering the negative sentiment from consumers, the Ministry of Land, Infrastructure and Transport is scheduled to announce countermeasures against rising home rental prices on Thursday.
BY SONG SU-HYUN [email@example.com]
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