As expectations for the new government grow, economic sentiment is showing signs of recovery. Following rebounds in consumer sentiment and corporations sentiment, the news sentiment index has also bounced back, reflecting a return to the conditions prior to the state of emergency. Experts agree that for the revitalized sentiment to expand across the economy, measures such as the supplementary budget must accompany fiscal execution.
◇ May news sentiment index 101.71… highest in five months
According to the Bank of Korea's Economic Statistics System (ECOS) on the 17th, the news sentiment index (NSI) for last month was recorded at 101.71, an increase of 3.77 points from the previous month. This marks the first time the NSI surpassed the baseline of 100 since it plummeted to 85.75 in December last year when the state of emergency was declared. The upward trend has continued this month, with the NSI rising to 104.77 based on data from the 1st to the 15th.
The NSI is an indicator that estimates public economic sentiment by analyzing articles from about 50 media outlets. A score below 100 indicates a predominance of negative sentiment in society, while a score above 100 indicates a predominance of positive sentiment. It is generally known to move about a month ahead of the Consumer Sentiment Index (CSI) or the Corporations Business Survey Index (BSI).
The NSI sharply fell to 85.75 in December last year but rebounded to 99.32 in January this year, seemingly on the mend, before dropping again to 93.73 in March. However, it rose again to 97.94 right after the impeachment ruling in April, and finally surpassed the 100 mark last month.
As economic sentiment rebounds, the Consumer Sentiment Index (CCSI) and BSI are also expected to recover rapidly. The CCSI for May was recorded at 101.8, an increase of 8.0 from the previous month, achieving its highest level since October last year (101.8). The increase was the largest since October 2020 (+12.3 points).
Corporations sentiment also rose by the largest margin in two years. The overall corporations sentiment index (CBSI) for last month recorded a rise of 2.8 points to 90.7 from the previous month. This represents the highest increase in over two years since May 2023. While it still remains below the benchmark of 100 and is more pessimistic than the long-term average (from January 2003 to December 2023), the improvement in the NSI suggests that the situation may get better.
◇ Rebounding sentiment due to the resolution of political uncertainty… "Second supplementary budget needed"
The primary reason for the improvement in economic sentiment is the resolution of political uncertainty. According to data submitted by the Bank of Korea to Rep. Cha Gyu-geun of the Rebuilding Korea Party on the 6th, the political uncertainty index was recorded at 1.5 (a seven-day moving average) as of the 4th, the day after the presidential election. This index soared to a record high of 12.8 on December 14 of last year following former President Yoon Suk-yeol's declaration of a state of emergency, but it has decreased in the lead-up to the election, stabilizing.
The political uncertainty index is derived from the number of articles that include the words 'politics' and 'uncertainty' in their titles and bodies, as tallied by the Bank of Korea's Research Department. It assumes a long-term average of zero from January 1, 2000, to the present, meaning that values above or below this indicate an expansion or contraction of political uncertainty.
The passage of the first supplementary budget, worth 13.8 trillion won, in last month's national assembly session seems to have also contributed to boosting economic stimulus policies. An official from the Bank of Korea noted, "After an election, it is common for positive articles to be published due to expectations surrounding the new government's launch, which led to improvements in sentiment indices," adding, "Expectations for measures to encourage consumption such as the supplementary budget have also prompted overseas investment banks to revise growth rates upward, indicating a continuation of the improvement trend."
However, experts believe that the current external uncertainties are significant, and for the revived sparks to spread throughout the economy, fiscal policies such as a second supplementary budget must support them. Woo Hye-young, a researcher at LS SECURITIES, stated, "This time, it seems the sentiment indicators rebounded due to expectations that economic stimulus measures would come after the election, but if domestic stimulus policies are not supported, sentiment could worsen again," adding, "The confirmation of the second supplementary budget is necessary for sentiment to improve."
There are also suggestions that monetary policies aimed at economic stimulus, such as interest rate cuts by the Bank of Korea, are necessary. Baek Yoon-min, a researcher at Kyobo Securities, said, "Now is the time to use both monetary and fiscal policies to stimulate the economy," adding, "While lowering interest rates may raise concerns about household debt, I believe we need to cut rates at least two more times this year in response to economic conditions."