Economic sentiment reflected in business articles appears to have deteriorated quickly as global tensions rose after U.S. and Israeli airstrikes on Iran. For the first time since late August last year, pessimistic views outnumbered optimistic ones. The economic mood, which had been improving on the back of a semiconductor boom and a rising stock market, is turning down again.
According to the Bank of Korea's Economic Statistics System (ECOS) on the 11th, the News Sentiment Index (NSI) fell to 98.93 on the 5th, dropping below the baseline of 100 for the first time since Aug. 25 last year (99.43). It then fell to 95.99 on the 8th, keeping pessimistic views in the lead over optimistic ones.
The NSI is an index derived by analyzing economic sentiment in economics news articles with artificial intelligence (AI). The index is created by extracting sample sentences from articles and calculating the difference between the numbers of positive and negative sentences in each sentence. With 100 as the benchmark, readings above that indicate more optimism, and below that indicate more pessimism.
The Bank of Korea (BOK) developed this index in January 2022 and has released it every Monday as experimental statistics. In its early phase in 2022, it generally stayed below 100 due to the fallout from the Ukraine-Russia war, then began to exceed 100 in the second half of the following year, and moved around 100 through November 2024. However, as uncertainty at home and abroad grew with the election of U.S. President Donald Trump and the declaration of martial law by former President Yoon Suk-yeol, it plunged and fell to the 82 level in April last year.
Since late August last year, an easing of economic uncertainty and strong earnings at semiconductor corporations supported an upward trend. On Nov. 3 last year, just after the KOSPI broke through the 4,000 level, it even jumped to 127.73. Although it fell back to the 110 range toward year-end as the won weakened, it stayed above 100 into early this year, showing a relatively positive tone.
But conditions changed after late February, when the United States and Israel attacked Iran. Geopolitical tensions sent international oil prices surging and the KOSPI tumbling, rapidly chilling the tone of economic news. In fact, the NSI, which was 117.24 on the 28th of last month, dropped to 109.56 on the 2nd of this month, and fell to 101.72 on the 4th. It ultimately slipped below 100 on the 5th.
The NSI is known as a leading indicator that moves about one month ahead of the Consumer Composite Sentiment Index (CCSI) and about two months ahead of the Business Survey Index (BSI) for manufacturing conditions. Accordingly, the improving real-economy sentiment may also deteriorate. According to the Bank of Korea (BOK), last month's consumer sentiment index rose 1.3 points from the previous month to 112.1, improving for a second straight month. The business sentiment index for corporations also rebounded for the first time in a month, rising 0.2 point from the previous month to 94.2.
Experts say that if geopolitical risks persist, domestic economic sentiment could contract quickly. Baek Yun-min, a researcher at Kyobo Securities, said, "If the war ends quickly, market volatility will likely calm fast, but if it drags on, uncertainty could grow," adding, "It also appears likely to have a negative impact on consumer and corporate sentiment."