Red Light for Economic Recovery in the Second Half of the Year

A red light has turned on for economic recovery in the second half of this year as consumer sentiments plunged to its lowest level in four years amid deep economic slowdown.

On Monday, the Korea National Statistical Office (NSO) announced the results of its December survey on consumer prospects. It shows that the Consumer Expectation Index (CEI), which reflects consumer sentiments on business conditions, living standards, and spending, fell from 86.6 to 85.1 (a monthly comparison). The figure has fallen three months in a row.

It is the lowest in four years since December 2000 when it stood at 82.2, and also stands lower than 86.7, the index figure from December 1998.

When the CEI surpasses 100, it means that households expecting an improvement in business conditions and living standard six months later surpass those who do not. When the CEI is lower than 100, it is the opposite.

The government is likely to face difficulties in implementing its economic policies because of widespread skepticism over economic recovery in the latter part of this year, triggered by plunging consumer sentiments.

The government planned to prematurely execute its budget in the first six months, in anticipation of economic recovery in the second half of this year led by the private sector.

Meanwhile, the CEI of the high-income class, which earns more than four million won per month, increased from 88.7 last month to 93.1, the first rise in three months.

On the other hand, the CEI of other classes, which earn less than the high-income class, all declined. In particular, the CEI of the class earning less than one million won per month stood at 77.1, the lowest figure since CEI record keeping began in November 1998.

Consumer sentiments have deteriorated because of declining income and asset value. The Household Income Evaluation Index, which shows changes in the current household income compared to a year ago, fell from 81.1 last month to 80.8.

The Asset Value Evaluation Index, which subjectively evaluates the current asset value compared to six months ago, also fell. More specifically, indexes on residential and commercial areas, land and forest, and finance and saving declined, with the exception of shares and bonds.

The proportion of households whose savings rose compared to six months ago was increased to 14 percent from last month, but the proportion of household whose debts rose decreased to 27.4 percent, indicating that consumers focus on saving and paying their debts instead of spending.

Jong sik Kong kong@donga.com