The economic sentiment of domestic consumers has significantly weakened, returning to levels seen right after the state of emergency. The tariff policy of the U.S. and the corporate rehabilitation application by Homeplus are cited as the main causes. Experts advised that in light of the potential worsening of consumer sentiment as the global tariff war intensifies, policy responses such as the preparation of a supplementary budget are necessary.
◇ March 1-16 NSI 87.77… lowest since last December
According to the Bank of Korea's Economic Statistics System (ECOS) on the 23rd, the News Sentiment Index (NSI), which had been close to 100 in January (99.32) and February (99.85), has plummeted to 87.77 this month (1-16th). This is the lowest level since last December (85.75), right after the state of emergency.
The NSI is an indicator that estimates the economic sentiment of the public by analyzing articles from about 50 news organizations posted on internet portals. A score below 100 indicates a predominance of negative sentiment in society, while a score above signifies a predominance of positive sentiment. The Bank of Korea has been releasing the NSI since April 2021.
The significance of the NSI lies in its evaluation as a leading indicator of consumer and corporate sentiment. A Bank of Korea official noted, "Although the NSI is not an official statistic, it generally tends to move about a month ahead of the Consumer Sentiment Index (CSI) or the Business Survey Index (BSI)."
As a result, the Consumer Confidence Index (CCSI), which had shown signs of recovery recently, is also likely to decline. The CCSI is calculated using six of the fifteen indices that constitute the Consumer Sentiment Index (CSI), including forecasts for consumer spending and future economic outlooks. Last month, the CCSI recorded a 4-point increase to 95.2 amid expectations for political stability, marking the largest rise in three years and eight months.
The Business Survey Index (BSI), which indicates corporate sentiment, is also expected to deteriorate. The manufacturing BSI rose from 62 in December of last year to 63 in January and 65 in February, but it is now under pressure to fall due to increased uncertainties in the economy. The BSI is an indicator that shows how corporations assess the current economic situation based on their order volume, production levels, inventory status, import and export levels, and employment conditions.
◇ Homeplus crisis, U.S. tariffs… "urgent measures needed"
The Bank of Korea cited domestic and international economic uncertainties as the background for the decline in the NSI. A Bank of Korea official explained, "The negative articles related to Homeplus's corporate rehabilitation application and the tariff policy of the Trump administration in the U.S. have impacted the drop in the NSI."
The problem is that the NSI may worsen further. President Donald Trump has warned that starting next month on the 2nd, he will impose reciprocal tariffs on trade partners that impose unfair tariffs. Given that Korea has been marked as a representative trade deficit country, it is expected to fall under the influence of reciprocal tariffs.
The recent possibility of a U.S. economic recession is also raising concerns. This month, the U.S. economic media CNBC conducted a survey of 32 experts, predicting a 36% chance of an economic recession in the U.S., a significant increase from January's survey (23%). If the U.S. economy falters, it could negatively impact the performance of Korean export corporations, leading to a slowdown in economic growth.
The Bank of Korea believes that urgent measures are necessary for recovering consumer sentiment. Bank of Korea Governor Lee Chang-yong emphasized at a press conference shortly after the Monetary Policy Committee meeting on the 25th of last month that, given the concerns over a domestic economic slump, "we need to prepare a supplementary budget of approximately 15 trillion to 20 trillion won as quickly as possible."
Yoon Yeosam, a researcher at MERITZ Securities, noted, "Amidst the lack of signs of improvement in the weakened domestic demand, the tariff policy of Trump and the domestic political instability are not alleviating the uncertainties, placing a significant burden on the Korean economy," adding, "We need to find a breakthrough through fiscal policy, such as the supplementary budget."