By Lee Hyo-sik
Staff Reporter
Consumer confidence fell to its lowest level in three and a half years last month on surging oil prices and slowing business activities as more consumers felt pessimistic about the economic outlook.
The downbeat consumer sentiment indicates that stagnant private consumption will unlikely improve any time soon, leaving exports as the only growth engine for the Korean economy. But outbound shipments have also shown signs of a slowdown in recent months as a result of the global economic slowdown.
According to the National Statistical Office (NSO) Thursday, the index measuring consumer confidence and living conditions for the next six months, dropped to 86.8 in June from 92.2 the previous month, the lowest since December 2004 when the index stood at 86.5.
A reading below 100 indicates that more people are pessimistic about the economy, spending and their financial well-being.
The consumer assessment index, which compared consumer views of the economy and current living conditions to those held six months earlier, also fell to 61.3 from 72.2 a month ago, weighed down by the rising costs of goods and services, as well as sluggish real estate and stock markets.
Eighty-four percent of consumers picked changes in consumer prices as the most important factor influencing their future economic conditions. About 5.4 percent said exports and the foreign exchange rate would determine the course of the economy, followed by domestic consumption at 4.8 percent.
``Consumer confidence for the future worsened last month as surging oil and other raw material prices, and the costs of goods and services rose, putting heavier financial burden on households. Consumer sentiment will likely deteriorate further if crude prices continue to show an upward curve,'' an NSO official said.
He also said weak income growth on slowing business activities, growing household debts amid rising interest rates on housing and other types of loans, and the bearish stock market all contributed to aggravating consumer sentiment.
In June, consumer prices grew at their fastest pace in nearly 10 years. Consumer prices rose 5.5 percent from a year earlier, up from a 4.9 percent gain the previous month.
The cost of living index, consisting of food and other daily necessities, jumped 7 percent from a year ago, meaning that consumers felt the inflation burden more heavily than the overall price increase.
Skyrocketing oil and other imported commodity costs, coupled with a weak won, have raised consumer prices, reducing private consumption, discouraging corporate investment and dampening job creation. Consumer prices are expected to grow faster than the economy this year at a rate of over 5 percent.
The government and the central bank cut the 2008 growth projection for Korea to below 5 percent, with some economic research institutes even floating the idea of just 3 percent growth.
The Korean economy has been losing momentum on soaring oil prices. Industrial output grew by single-digits in May for the first time in five months on sluggish private consumption and investment. Production expanded at the slower rate of 8.3 percent from a year ago, down from a 10.4 percent gain the previous month.
Retail sales expanded 3.1 percent from a year ago, down from a 5.7 percent year-on-year gain the previous month, while corporate facility spending fell 2.5 percent.