Seoul: Consumer sentiment up, but spending stagnates

The Samsung Economic Research Institute's consumer sentiments survey for the third quarter showed that the consumer sentiment index rose by 2.7 points from the previous quarter's 48.5 points to reach 51.2 points.

This is the first time the country's consumer sentiment has risen above the neutral base level of 50 since the first quarter of 2006. A consumer sentiment score above the neutral level indicates a positive attitude towards the present status and the future of the economy.

Despite an increasingly positive public attitude towards the economy, another private think-tank yesterday (August 5) warned that the country's economic forecast may be hampered by a slowing consumer spending increase.

The Samsung survey comes on the heels of a report by the Hyundai Research Institute that showed consumer spending during the second quarter of the year only maintained the same growth rate seen in the first quarter despite the 0.9 percentage point rise seen in economic growth during the same period.

HRI said that with 42 per cent of last year's economic growth taken up by consumer spending, increasing exports and investment alone cannot ensure increasing economic growth unless a rise in consumer spending follows suit.

The positive change in consumer sentiment was facilitated by the large increase in the present and expected business condition index that rose by 7.2 and 4.2 points, respectively, from the previous quarter's 36.2 and 54 points.

The present business condition index is a reflection of the public attitude towards the current status of the economy while expected business condition index indicates whether the public expects the economy to improve during the next 12 months.

However, at 43.4 points, the present business conditions index remained far below the neutral level indicating that the economic conditions for the public had not improved to a significant degree.

Citing household debt, a low employment rate and an increasing consumption gap between high and low income groups as the main causes of the drop in consumer spending increase rate, the HRI said that the government needs to focus on solving employment and household debt problems to ensure that the economy continues to expand at an increasing rate.

- By Choi He-suk

The Korea Herald

Publication Date: 06-08-2007