South Korea’s consumer confidence fell to the lowest level since the Asian financial crisis a decade ago on concern faltering economic growth will lead to further job cuts and falling incomes.
The sentiment index sank to 81 in December from 84 in November, the Bank of Korea said in Seoul today. That’s the lowest reading since the fourth quarter of 1998. A score below 100 indicates pessimists outnumber optimists.
President Lee Myung Bak said two days ago the export-dependent economy may shrink in the first half of next year, which would mark the nation’s first recession since 1998. South Korea’s Hynix Semiconductor Inc. and Hyundai Motor Co have joined global counterparts in cutting production as the global economic slowdown deepens.
“The economy is heading for worse times as both consumer spending and exports weaken,” said Go You Sun, an economist at Daewoo Securities Co in Seoul. “It’s difficult to see consumer sentiment picking up for a while.”
The Kospi stock index fell 2.8% to 1,086.57 at 10:46 a.m. in Seoul, extending this year’s slump to 43%. The won climbed 1.1% to 1,285.50 against the dollar, and has dropped 28% this year, making it Asia’s worst performer.
An index measuring consumers’ views of the economic outlook declined to 56 in December from 58 in November. The nation’s jobless rate rose to a 16-month high of 3.3% in November.
“Consumer sentiment is continuing to deteriorate due to concern about job security and a drop in incomes,” the central bank said in today’s report.
Hynix Semiconductor, the world’s second-biggest maker of memory chips, said this month it will eliminate 30% of its executives and cut labour costs by more than 15%.
Hyundai Motor, South Korea’s largest automaker, and affiliate Kia Motors Corp said on December 22 they will freeze wages for administrative workers and shorten factory operations. Hyundai’s sales in the US, its biggest overseas market, tumbled 40% in November.
The Organisation for Economic Cooperation and Development this month said South Korea should use fiscal stimulus and interest-rate reductions to buttress the economy.
Annual growth will slow to 2.7% in 2009, which would be the weakest pace since the economy was last in a recession in 1998, the OECD forecasts.
South Korea has pumped funds into the financial system, cut taxes and boosted public spending to limit fallout from the global credit crisis. The Bank of Korea has slashed its key rate by 2.25 percentage points since October, the most aggressive easing since it first set a benchmark in 1999. The bank cut the rate to a record low of 3% on December 11.
The consumer confidence index is based on a survey of 2,200 households in 56 major cities conducted by mail and telephone from December 12 to December 19.