Korean Consumer Sentiment Up, But Outlook Is Grim

South Korean consumer sentiment rebounded in January from a 10-year low in December but the deepening global recession's impact on the local job market has clouded its prospects, analysts said on Wednesday.

CNBC.com

The rise in the central bank's consumer sentiment index was a reaction to aggressive interest rate cuts and a series of government stimulus measures, but it is unlikely to improve much further over the near term, they said.

In addition, the Bank of Korea's data was based on a survey carried out before figures showed late last week that Asia's fourth-largest economy suffered its second-biggest contraction on record in the fourth quarter of last year.

"I don't put much meaning on the January figure. With everybody talking about recession and worrying about their jobs, the sentiment index could dip again," said Song Jae-hyeok, an economist at SK Securities.

"As the number of jobs has already began to contract and will likely drop further while many companies are cutting wages, I would not be surprised to see a fresh record low for the index sometime soon," he said.

The Bank of Korea's consumer sentiment index, which measures sentiment among South Koreans in six categories, rose to 84 in January from a 10-year low of 81 in December. A reading below 100 indicates most consumers are pessimistic. 

The government has offered stimulus packages worth about $100 billion and the central bank has slashed its base rate by a total of 2.75 percentage points since early October to prevent the local economy from falling into its first recession in a decade.

Investors and analysts bet the Bank of Korea would further cut the base rate, now at a record-low 2.5 percent, below 2 percent over the coming months, but said a major local turnaround would still depend on the global economy.

"Given its heavy reliance on global demand for growth, South Korea's economy cannot avoid a recession even with impressive stimulus packages. The central bank will have to move further to allay the pain," said Oh Suk-tae, an economist at Citigroup.

Separately, official data from the Bank of Korea showed the index on the interest rate outlook plunged to 81 in January from 93 in December, suggesting more South Koreans expect general borrowing costs to go down further.

The central bank next reviews rates on Feb. 12.

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