SEOUL: South Korean consumers turned less optimistic about the economy as the country grapples with its worst coronavirus outbreak to date, a development that will be closely watched by the central bank as it mulls when to start raising interest rates.
The consumer sentiment index slipped for the first time this year to 103.2 in July from 110.3 a month earlier, the Bank of Korea (BoK) said in a statement yesterday.
The above-100 reading indicates respondents expressing optimism still outnumbered those with pessimistic views.
South Korea placed half of its population under semi-lockdown this month after daily infections surged to a record of more than 1,000 cases.
The restrictions came into effect just as consumption was emerging from a year-long slump, suggesting growth for the second half of the year may disappoint unless outbreaks quickly come under control.
The latest sentiment reading comes a day after South Korea reported weaker-than-expected growth for the second quarter. “The economy remains on track to expand 4% for the year as earlier expected, but the sudden drop in confidence underscores the vulnerability of the outlook as the virus rages across the nation,” according to the BoK.
The majority of economists surveyed by Bloomberg expect the BoK to hike its benchmark rate during one of its three remaining policy-setting meetings this year, with a few seeing a move as early as in August.
Among the components of the headline sentiment index, households’ outlook on the economy contributed most to the drop, followed by their plans for spending.
Their outlook for interest rates rose to 126, the strongest since late 2018, meaning more people expect rates to go up than down. Households’ inflation expectations for the next 12 months were unchanged at 2.3%.
The survey of 2,331 households was conducted July 12-19. — Bloomberg