Widening Gap Between Economic Indicators and Consumer and Business Sentiment

The gap between economic indicators and business and consumer sentiment is getting wider.

The Bank of Korea (BOK) reported that Gross Domestic Product (GDP) in the second quarter of this year grew 5.5 percent, which was higher than expected, but that consumer sentiment seems to not be on the same wavelength.

One survey shows that Korean people feel that inflation is running high at around nine percent, different from the official inflation rate of around three percent released by the National Statistical Office (NSO).

It is temporarily being reported that Korea’s GDP in the second quarter increased 5.5 percent year-on-year. Many people, however, point out that the figure is “an illusion” created by the boom in Information Technology (IT).

The IT led GDP growth with 28.1 percent growth, but other industries recorded a mere 2.6 percent growth, according to the BOK.

Nevertheless, the employed in the IT industry account for only 3.3 percent of the total number of workers. This means that the remaining 96.7 percent of people working in non-IT sectors do not feel such an economic growth rate.

In terms of growth rate felt by businesses based on the number of employed, the IT industry grew 0.9 percent while non-IT industries grew 2.5 percent. The combined sum of 3.4 percent is lower than the second quarter GDP growth rate of 5.5 percent.

The NSO reported that consumer price index in June rose 3.6 percent year-on-year. But a Korean Gallup survey of 700 ordinary people and 300 experts shows that the inflation rate perceived by people was 9.73 percent while that of experts was 7.74 percent. The survey was commissioned by the Office for Government Policy Coordination.

The inflation rate actually felt by people is 2.7 times higher than the official rate. The NSO’s Consumer Price Index (CPI) for living necessities is much higher than the rise in CPI.

Some signs indicate that the official unemployment rate does not reflect reality. The NSO unemployment rate in July stood at 3.5 percent, but when the number of people who stopped searching for jobs is included, the number would be much higher.

People who have stopped job hunting refer to people with the competence and willingness to work, but failed to get a job after a year of job-seeking effort. They are categorized as part of the economically inactive population, so they are not counted among the unemployed.

As of the end of July, the number of unemployed was 814,000, and the number of people who stopped searching for jobs stands at 109,000.

Jong sik Kong kong@donga.com