Consumer sentiment rebounds to pre-martial law levels ahead of election
Confidence index posts steepest rise in nearly 5 years as political uncertainty eases
South Korean households grew more optimistic about the economy in May, with consumer sentiment rebounding to levels last seen before the declaration of martial law in December.
According to the Bank of Korea's monthly survey, the composite consumer sentiment index rose to 101.8 in May, up 8 points from April. It marked the first time in six months the index returned to positive territory, defined as a reading above 100.
The rebound signals a significant shift in public confidence, representing the steepest monthly increase since October 2020, when it surged 12.3 points.
The index, which stood at 101.8 in October before slipping to 100.7 in November, plunged to 88.2 in December following the Dec. 3 martial law declaration by then-President Yoon Suk Yeol. The political crisis rattled the nation, dragging sentiment to its lowest level since the COVID-19 pandemic and prompting the sharpest monthly decline in five years.
Sentiment had since remained in the 90-point range amid prolonged political uncertainty, only returning to pre-crisis levels in May.
The central bank cited easing uncertainty as a key driver of the improved outlook.
'The passage of the supplementary budget in parliament, the postponement of the US 'reciprocal tariff,' and optimism surrounding the incoming administration and its economic policies have helped ease downside pressures and contributed to the improvement in sentiment,' said a BOK official overseeing consumer sentiment.
All six sub-indices that comprise the composite index rose compared to April, with the sharpest gains in expectations for future economic conditions and assessments of the current economy. Notably, the future outlook index jumped 18 points — the largest monthly increase in eight years — indicating heightened public hopes for an economic recovery.
Still, the central bank cautioned against viewing the rebound as a definitive turning point.
'The uptick partly reflects a base effect following months of subdued sentiment,' the official said. 'Much of the optimism surrounding the incoming administration's policies has already been priced in, so it remains to be seen whether this momentum will be sustained.'
The biggest drag on the Korean economy has been the prolonged political turmoil triggered by Yoon's declaration of martial law, which ultimately led to his removal from office by a Constitutional Court impeachment ruling on April 4. The country is now preparing to elect a new president on June 3, bringing an end to a six-month leadership vacuum.
External headwinds are also intensifying, with trade-related risks emerging as the most urgent challenge for the export-dependent economy. The US has announced sweeping tariff measures on key trading partners, including a 25 percent 'reciprocal tariff' on South Korean goods. The measure is currently under a three-month waiver through July 8, during which Seoul and Washington are engaged in bilateral trade negotiations.
Separately, the BOK reported Tuesday that public inflation expectations for the next 12 months fell by 0.2 percentage points to 2.6 percent in May, citing declining oil and agricultural prices as the main contributors.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Korea Herald
29 minutes ago
- Korea Herald
Mammoth probes to look into Yoon's alleged treason, insurrection
Special teams size of a district attorney's office to be formed to investigate ex-president Multiple probe teams together comprising some 120 prosecutors are set to look into allegations surrounding former President Yoon Suk Yeol, including one that he committed treason by trying to impose martial law on Dec. 3, 2024. The Democratic Party of Korea on Thursday passed a series of bills seeking to open three separate special counsel investigations. One will investigate whether Yoon's short-lived martial law declaration would constitute insurrection, for which a criminal trial is already underway, as well as treason. The Democratic Party claims that Yoon plotted to provoke a military action from North Korea to justify declaring martial law with his hawkish policies such as resumption of anti-Pyongyang broadcasts near inter-Korean borders in June 2024. The Democratic Party is also pushing an as-yet unsubstatiated claim that Yoon sent unmanned aerial vehicles into Pyongyang in October 2024. Yoon allegedly attempting to instigate an armed conflict with North Korea in the run-up to his martial law decree was "treason," the Democratic Party claimed, on top of it being a "rebellion against the Constitution, which is to say, insurrection." Another special counsel investigation would revisit the death of a Marine in July 2023. Cpl. Chae Su-geun, 20, died when he was swept away in moving water during a search and rescue operation to locate flood victims in a rain-swollen river in Yecheon, North Gyeongsang Province. The Democratic Party claims that the Yoon presidential office tried to hinder a preliminary investigation into if there had been negligence and other wrongdoing at the top in Chae's death. Yoon's wife Kim Keon Hee is also set to face a special counsel investigation into allegations that she interfered in the People Power Party's nomination of candidates for a National Assembly seat. The Democratic Party voted without the People Power Party to pass the special counsel bills Thursday. The Democratic Party has the majority in the Assembly, holding 167 out of 300 seats.
Korea Herald
an hour ago
- Korea Herald
Hyundai Rotem nears W8.5tr K2 tank deal with Poland
Hyundai Rotem, the railway and defense contractor under Hyundai Motor Group, is expected to seal a second K2 tank export deal with Poland worth 8.5 trillion won ($6.3 billion) as early as this month, marking a major follow-up to the initial contract after a three-year gap. According to media reports Friday, Hyundai Rotem has completed major discussions with PGZ, Poland's state-owned defense company, covering key aspects, including the number of tanks, and is now working out detailed arrangements necessary for the final signing. Unlike the first agreement, which specified the initial delivery of 180 tanks out of 1,000 units, the second contract will detail ways for local production and technology transfer in Poland, as well as the additional number of tanks. To bolster its credibility and expedite the negotiations for the second deal, the company reportedly showed its commitment by delivering nine K2 Black Panther tanks in addition to the 12 units in March. This brings the total delivered to 133 units, leaving 47 tanks remaining to fulfill the first contract. On Thursday, the Polish Army's 15th Gizycko Mechanized Brigade announced on Facebook, 'The K2GF Black Panther tanks are now with us,' sharing photos of 9 tanks unloaded at the port of Swinoujscie. The brigade emphasized that these tanks marked another step forward in the modernization of the Polish military. Although no exact timeline has been given for finalizing the second agreement, industry watchers observe that the process is running behind earlier market expectations, which had targeted the fourth quarter of 2024. It was primarily due to extensive negotiations with the Polish government on local manufacturing and technology transfer, along with South Korea's political tensions sparked by former President Yoon Suk Yeol's martial law declaration. 'In the case of K2PL models, which will be produced in Poland, there are a number of items on the table, ranging from the procurement of tank components, cost management, maintenance and repair procedures to the scope of technology transfer,' said an industry source on condition of anonymity. Despite the overdue deal, industry insiders indicate that newly elected President Lee Jae-myung's drive for the nation's defense industry will accelerate negotiations with the Polish government. 'It is too soon to tell the impact of the new President,' the source added. 'However, as we now have the defense control tower (which had been inactive for seven months), our hope is to see bilateral talks between Korea and Poland on bolstering defense ties.' During his presidential campaign, Lee highlighted defense as a key strategic industry for propelling national growth, committing to specific support measures to become a 'top four global defense power' after the US, Russia and France.
Korea Herald
2 hours ago
- Korea Herald
US Treasury keeps Korea on currency manipulation watchlist
Washington signals potential broadening of forex monitoring policy, raising concerns in Seoul over the roles of public funds South Korea remained on the US Treasury Department's currency-monitoring watchlist updated Thursday, signaling heightened scrutiny over potential currency manipulation accusations. The US Treasury issued the Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States report, maintaining Korea on the monitoring list for extra foreign exchange scrutiny. Korea was first added to the watchlist in April 2016. It was dropped from the list in November 2023 but was reinstated in November 2024. The semiannual currency report assesses the trade balances and currency practices of major US trading partners. Countries are automatically placed on the monitoring list if they meet at least two of three conditions: a bilateral trade surplus with the US of at least $15 billion, a current account surplus exceeding 3 percent of gross domestic product, and forex market intervention — in other words, persistent net purchases of foreign currency. Korea remained on the watchlist for posting a $55 billion trade surplus with the US and recording a current account surplus equivalent to 5.3 percent of its gross domestic product. It did not meet the threshold for forex market intervention, as it had intervened in the market to strengthen the Korean won in 2024 by selling the greenback instead of purposely weakening the local currency. 'Korean authorities reported net sales of $11.2 billion for all of 2024, approximately 0.6 percent of GDP and concentrated in the second quarter of the year,' the report stated. The US Treasury warned against any form of market intervention in the report, underpinning, 'Korea should continue to limit currency intervention to exceptional circumstances of disorderly foreign exchange market conditions.' The currency report, issued for the first time since US President Donald Trump took office, was expected to provide insight into the US administration's stance on exchange rates. As anticipated, the US Treasury signaled plans to enhance its scrutiny of trading partners' currency policies and practices in future assessments. It indicated that it may begin monitoring not only traditional forms of foreign exchange intervention but also other tools that could influence exchange rates for competitive advantage, including the use of capital flow management measures, macroprudential policies and activities by government-affiliated investment vehicles such as pension funds or sovereign wealth funds. This expanded scope raises potential concerns for Korea, where major institutional investors such as the National Pension Service, one of the largest pension funds in the world, and the sovereign wealth fund Korea Investment Corporation, play a significant role in cross-border capital flows. The state-run fund operators are major buyers of dollars on the forex market. When making foreign investments, they buy dollars, which adds pressure on the buying side of the greenback, consequently strengthening the dollar and weakening the Korean won. Though both funds do not share their asset allocation by country, significant portions of the NPS and the KIC's investments are tied to the US. As of December, the NPS holds assets worth roughly $210 billion in the North American stock markets and $30 billion in US bonds, while the KIC operates assets amounting to approximately $125 billion in US shares. Since the US flagged forex policy as a discussion item in trade talks in April, market watchers have speculated that the role of the NPS could become a touchy subject in policy discussions with the country. 'The NPS tripled its advance FX purchase limit to $3 billion from $1 billion per month in September 2024 and expanded its swap arrangement with the Bank of Korea from $50 billion to $65 billion in December 2024,' the report stated, explaining the pension fund operator can borrow dollars from the central bank's reserve for overseas investment. The Finance Ministry announced it will continue communicating with the US Treasury to deepen bilateral understanding. "The Korean government will continue to strengthen mutual understanding and trust on foreign exchange policy through communication with the US Treasury,' the Finance Ministry stated through a press release. "Ongoing forex negotiations between the financial authorities of Korea and the US will be carried out carefully and thoroughly,' the ministry stated, referring to the trade talks between Seoul and Washington. Along with Korea, eight other countries, including China, Japan, Singapore, Taiwan, Vietnam and Germany, were on the monitoring list, with Ireland and Switzerland newly added. The US Treasury further stated that no major trading partner was found to have manipulated its currency in 2024.
