Consumer sentiment bounces back on disaster relief fund

The composite consumer sentiment index (CCSI) inched up in May for the first time this year, as emergency disaster relief funds being paid to most households here boosted consumer confidence, the Bank of Korea said Tuesday.

The May index came in at 77.6, up 6.8 points from the previous month. The monthly figure had been declining from January to April amid widening economic uncertainties here and abroad due to the COVID-19 pandemic. The CCSI in January topped 104, but went down to 70.8 in April, as the virus shock kept freezing consumption activities here.

The rebound is attributable to the government’s pump-priming measures — represented by the unprecedented cash payouts of up to 1 million won ($807) to 21.7 million households, the central bank said.

Starting earlier this month, the government began offering the anti-coronavirus relief money to certain households. According to the Ministry of Public Administration and Security, more than 20 million received an aggregate total of 12.96 trillion won between May 4 and 25.

“We believe the rise is due to a loosening social distancing campaign, signs of resumption in economic activities and the government’s aggressive pump-priming at a time when coronavirus fears are subsiding,” an official from the BOK said.

“Above all, the effect from the emergency relief funds played a positive role in driving up the index in May.”

Yonsei University economist Sung Tae-yoon said the relaxing social distancing restrictions were the key driver for the rise of the index. The government ran the nationwide campaign for 45 days between March 22 and May 5 to slow down the then-rapid spread of the virus here.

“The end of the campaign has had the biggest effect on consumer confidence, as this stimulated face-to-face consumption,” he said.

Despite the slight increase, consumers are still pessimistic over the economic outlook here due to the COVID-19 shock, as the figure in May remains far below the standard level of 100, the central bank said.

The May index is on a similar level of that in October 2008 when the local economy suffered from the aftermath of the global financial crisis.

The BOK also said the outlook for the index would depend on how the coronavirus spread unfolds here and abroad.

Korea Capital Market Institute economist Noh San-ha said the market still needs to keep a close watch on the virus-induced uncertainties despite the recent rebound in the index.

“Even if the virus spread is showing signs of subsiding at least in Korea, uncertainties remain in place as medicines or vaccines to perfectly cure the virus have not been developed,” Noh said.

“The rise in the index is a positive signal for the economy, but my view is that the economy will continue facing uncertainties until the virus spread comes to a complete end across the globe.”