Buyer sentiment drops

As the nation braces for a sweeping overhaul of major industries, consumer sentiment dipped again this month, blasting hopes for economic recovery in the second quarter.

According to the Bank of Korea (BOK) on Thursday, its composite consumer sentiment index fell two points to 99 in May from the previous month.

A reading below 100 means there are more consumers feeling pessimistic about the economy, while a reading above that level suggests the opposite. So far, in 2016, April was the only month in which the index exceeded 100.

“As restructuring of the shipbuilding and shipping industries has begun,” said Joo Seong-je, director for economic statistics at the central bank, “that aggravated the consumer sentiment.”

A sub-index showing consumers’ current judgment about the economy compared to six months before slid four points month-on-month to 70 in May, strongly suggesting that the current situation is clearly worse than six months ago. Another sub-index forecasting consumers’ expectations about economic conditions after six months also dropped six points to 80. As the sentiment worsens, concerns are rising about the impact of the ongoing restructuring moves on the real economy.

A significant impact will be felt by the labor market as large businesses are being forced to lay off employees to cut costs and offset losses. According to the BOK report, an index of employment prospects tumbled eight points month-on-month to 74 this month, the lowest since March 2009 when the Korean economy was partially hit by the U.S.-triggered global financial crisis.

In March and April, there were some hopes about the revitalization of the fourth largest economy in Asia as both consumer and corporate sentiments picked up and industries performed a little better. But in April, some institutions, including the BOK, lowered the country’s growth forecasts for this year.

The BOK lowered its previous forecast of 3 percent to 2.8 percent. The International Monetary Fund (IMF) cut its own forecast from 3.2 percent to 2.7 percent, saying that it lowered its projection for Korea’s economy largely due to sluggish growth in emerging markets, including China. The Asian Development Bank also readjusted its growth outlook for the Korean economy from 3.3 percent to 2.6 percent.

Korea’s Finance Ministry is almost the only institution that continues to stress that a 3.1 percent expansion is doable, citing recent positive signs including improving consumer sentiment and spending.

Moreover, according to a Nielsen survey on Wednesday, Korea’s consumer confidence in the economy was ranked the lowest for the fourth quarter in a row among 63 countries around the world.

The researcher has been conducting the Global Survey of Consumer Confidence and Spending Intentions every quarter, asking consumers their sentiment regarding economic conditions, major interests and preferences for spending.

Korea’s consumer confidence index by Nielsen marked 44 in the first quarter of this year, way below the global average of 98.

About 91 percent of Korean respondents said they have negative views of the labor market for the next year. As much as 84 percent said they predict their fiscal conditions would not be favorable, while 88 percent said they think it is not a good time to buy things, even needed items.

In addition, 92 percent perceive the current situation to be a recession, the survey showed.

Aggravating consumer sentiment might increase the chances of the BOK raising the key interest rate soon.

BOK Governor Lee Ju-yeol suggested a possible rate hike in April if corporate restructuring impacts the real economy and the financial market.

“The ripple effects of the upcoming restructuring can be a factor to consider when the monetary policy committee decides on the interest rate,” Lee said.

BY SONG SU-HYUN [song.suhyun@joongang.co.kr]