Korea: Consumer confidence reaches positive territory in April
April 25, 2017
Despite heightened geopolitical turmoil on the Korean peninsula, consumer confidence soared in April to levels nearing those seen before the eruption of the political scandal in October 2016 that engulfed former President Park Geun-hye. According to the Bank of Korea’s latest Composite Consumer Sentiment Index (CCSI), the indicator jumped from 96.7 in March to 101.2 in April, marking a 6-month high. As a result, consumer confidence now sits above 100, signaling that optimists outnumber pessimists for the first time since the outbreak of the political scandal.
The improvement was linked to reduced domestic political uncertainty and robust economic data stemming from an upbeat external sector. Korean households, which had already reacted positively to the Constitutional Court’s decision to uphold President Park’s impeachment in early March, showed positive expectations that, once the dust settles following the 9 May presidential election, a new government will bring about an era of expansionary fiscal policymaking. Economic momentum has also improved in recent months, with solid performances among Korean exporting sectors in Q1 likely to have contributed strongly to economic growth.
Looking at the details, the improvement was not surprisingly broad-based. Both current and future domestic economic conditions rose strongly in April. Future employment opportunities also increased markedly compared to March, suggesting that risks to economic growth have tilted to the upside as higher economic sentiment and better job prospects fuel potentially higher private spending. Indeed, expectations of household income and spending both rose in April from the previous month. An important caveat, however, was consumers’ perception of current and future household debt levels—a pressing issue for Korean policymakers at a time of increasing interest rates in the U.S.—which saw no change this month.
Author: David Ampudia, Economist