Consumer confidence is surging

Consumer confidence in the Korean economy reached its highest level in nearly six and a half years, the central bank said Tuesday, backed by high hopes for the new administration’s expansionary fiscal policies, bullish stock markets and healthy corporate earnings.

In June, the composite consumer sentiment index stood at 111.1, up 3.1 points from the previous month, according to the Bank of Korea. This is the highest level since Jan. 2011, when it reached 111.4. The figure rose for the fifth consecutive month.

This was the first time since April 2016 that the index remained above the 100 level for three months in a row.

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 largely negative view.

“Consumer sentiment was low ahead of the impeachment of the former president, but it managed to recover starting from February,” said Park Sang-woo, a director at the central bank.

“People’s expectations for a recovery have gone up after the presidential election.”

The index fell below the 100 benchmark in November to 95.7 and remained relatively low until March, when it reached 96.7. In April, the index finally swung positive to 101.2.

“Recently, exports and local stock markets have seen significant improvements and some of the survey respondents said their confidence went up due to such reasons,” said Park at the BOK.

“The government has been announcing various plans to stabilize the labor and real estate markets and we found people’s expectations toward them remain high.”

On June 9, a week before the BOK conducted the survey, the benchmark Kospi reached an all-time high of 2,391.69. During the first five months of the year, exports jumped 16.3 percent year on year to $228 billion, according to the Korea Customs Service.

As the Moon Jae-in administration pushes to improve the sluggish labor market, expectations over jobs reached an all-time high of 121, up 8 points when compared to the previous month. This suggests that many believe they will be able to get jobs within six months. The figure remained below the 100 level from February 2011 to last month, when it hit 113.

An analyst argued that the improved sentiment might lead to a rise in domestic consumption.

“There are lots of volatilities, but improvement in consumer sentiment has high chance of leading to growth in domestic consumption, so this is very meaningful,” said Sun Seung-bum, an economist at Yuhwa Securities.

The BOK surveyed 2,200 households from June 13 through 20 to come up with the index.

Meanwhile, the Korea Institute for Industrial Economics & Trade, a state-run think tank, raised its outlook for the country’s economic growth on Tuesday, citing improved exports and investments.

The think tank predicted the economy this year would likely grow 2.8 percent, 0.3 percentage points higher than its projection in November.

“Both domestic and international conditions have been improving rapidly when compared to the end of last year,” the think tank wrote in a report release Tuesday. “Uncertainties at home and abroad have been easing and expectations about government policies have been going up.”

Exports are expected to rise 11.1 percent year on year from 2016 to 2017 and the figure for facilities investment is projected to go up 7.3 percent in the same period, the think tank said.

Exports have improved due to the petrochemical industry’s performance, which benefited from a rise in global crude oil prices. Also, prices of major export goods such as semiconductors and displays have gone up compared to last year.

Imports have also been going up due to the rise in costs of energy-related products. But KIET said Korean companies have been buying more intermediary goods from abroad as their exports improve. The think tank projected the country’s trade surplus to drop slightly from $89.4 billion in 2016 to $82.7 billion this year.

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