Consumer sentiment suffers steepest drop since MERS outbreak

By Lee Min-hyung

Domestic consumer sentiment this month suffered its steepest decline since the MERS outbreak in June 2015, as a growing wave of coronavirus-related panic sweeps across the country, the Bank of Korea (BOK) said Tuesday.

According to data from the central bank, the composite consumer sentiment index (CCSI) during Feb. 10 to 17 dropped to 96.9, down 7.3 points from the previous month.

But as the figure was compiled using data collected before the COVID-19 fear reached its peak, the actual consumer confidence throughout the month will decline even further, according to the BOK.

In a specific breakdown, a sub-index indicating consumers' economic prospects declined 11 points to reach 76 in February, compared to a month ago.

The dim outlook is in line with the nation's year-long economic slowdown. But the outbreak of the virus has further damaged consumers' hope for a potential rebound of the local economy in 2020.

The BOK hinted at the possibility that consumer confidence in March may drop further, as the index in February did not reflect the recently-worsening coronavirus situation.

“The CSI in February did not fully reflect the latest consumer sentiment on the virus, as it was not until very recently that the seriousness of the virus started coming to the fore in Korea,” an official from the bank said.

The virus fear has also weakened corporate sentiment here, according to data by the Korea Economic Research Institute.

The research organization forecast the business survey index (BSI) to come in at 84.4 in March, a drop of 7.6 points from the previous month. The BSI indicates the business sentiment of the nation's top 600 firms by sales.

The index took a turn for the worse for the first time since December 2019 amid the rising fear of the coronavirus, the organization said.

More than 80 percent of the surveyed firms said their business was affected by the virus. About 15 percent of the 600 firms also responded that the virus posed a “significant” threat to their business.

Industries from tourism and transportation were hit hardest by the epidemic, according to data.

Local economists urged the government to step up disinfection activities against the virus to minimize its further economic impact here.

“The most practical way to improve the aggravated consumer sentiment is to minimize the duration of the epidemic by coming up with more thorough disinfection strategies,” Kang Hyun-ju, an economist at the Korea Capital Market Institute, said.

He pointed out the government would not be able to generate tangible outcomes by making changes to economic policies.

Some experts argue the BOK should cut the key interest rate further during the upcoming rate-setting meeting, as well as help lift up the sagging economy and raise weakening consumer and business sentiment.

“Sentiment has already fallen to a very low level, as more and more people are reluctant to engage in outdoor activities amid escalating virus fears,” he said.

“The potential base rate cut will be nothing more than a gesture from the government that the authority takes the virus issue seriously,” the expert said. “But this will never be a fundamental solution to resolve the virus-related economic downturn.”