Korea: U.S.-North Korea tensions continue to weigh on consumer sentiment

The consumer confidence index recorded a back-to-back decrease in September, further suggesting that consumers are tempering their mood amid ever-increasing geopolitical tensions in the Korean peninsula. The index fell from 109.9 in August to 107.7 in September. While consumer confidence remains well above the 100-point threshold that separates optimism from pessimism among Korean households, September’s reading was the lowest since April.

The deterioration in consumer sentiment was due to households’ more pessimistic view on current domestic economic conditions as well as the country’s economic outlook. The latter crossed the 100-point mark in September; as such there is now greater pessimism than optimism among consumers regarding Korea’s future economic health. Households’ prospective spending levels also eased slightly, while their current and future living standards were unchanged from the previous month.

The decline in consumer sentiment is partially indicative of the effects of an escalation in the bellicose rhetoric between North Korea and the United States. As North Korea continues to race towards its goal of developing ballistic missiles capable of striking U.S. soil, President Donald Trump threatened “total destruction” of the country at his first United Nations Speech in mid-September.

FocusEconomics Consensus Forecast panelists expect private consumption to expand 2.0% in 2017, which is down 0.1 percentage points from last month’s forecast. For 2018, the panel sees private consumption growth at 2.2%.