Consumer confidence is boosted by credit rating upgrade

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Consumer confidence is boosted by credit rating upgrade

Consumer confidence in the Korean economy improved in August, largely thanks to Standard & Poor’s upgrade of Korea’s sovereign credit rating to a record high earlier this year.

According to Bank of Korea Friday, the composite consumer sentiment index (CCSI) stood at 102, up one point from the previous month, its highest level since December.

A reading above 100 points indicates the majority of survey participants maintain a positive outlook on the national economy, while a reading below 100 indicates a negative view.

“The CCSI fell below the 100 points in May, and we believe it was when the shipping and shipbuilding companies started to announce that they were going through restructuring,” said Joo Sung-je, a director at the BOK. “The index has improved recently as many uncertainties, such as Great Britain leaving the European Union, have eased over time along with the recent decision by S&P to upgrade Korea’s credit ratings. Furthermore, the local stock market has grown recently, which has affected consumer sentiment positively.”

In fact, the index fell from 101 in April to 99 in May, where it remained until June. It rose to 101 last month and to 102 this month.

S&P upgraded Korea’s rating to a record high of AA from AA- earlier this month.

“Along with that, expectations of expansionary macroeconomic polices also weighed in this month’s figures,” said Joo.

The government unveiled a stimulus package worth 28 trillion won ($25.1 billion) last month that includes an 11 trillion won supplementary budget.

The government has said the stimulus package will help raise economic growth for this year between 0.1 and 0.2 percentage points. However, the supplementary budget is stuck in the National Assembly due to political gridlock.

The BOK survey found sentiment on household finances pessimistic, matching the previous month’s 91. In terms of future prospects for household finances and household incomes, the index also remained unchanged from the previous month at 98 and 100, respectively, suggesting consumers are relatively optimistic about the future.

Furthermore, future prospects for the labor market rose 7 points from 76 in July to 83 this month.

The majority of Koreans considered public utility charges one of the biggest factors that will have an impact on consumer prices in the near future.

According to the survey, 59.1 percent of the survey respondents said public utility charges will boost consumer prices, and another 41.2 percent said housing prices were one of the biggest factors that will raise inflation in Korea.

The BOK surveyed 2,200 households from Aug. 12 to 19.


BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]

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