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Plummeting economic prospects, worsening consumer and stock prices and other indicators are shredding confidence in the economy.
According to National Statistical Office data released Thursday, the consumer evaluation index in June hit 61.3 (against a benchmark of 100) which means most of the respondents surveyed said that economic and living conditions have worsened compared to six months ago. The figure is the lowest in four years and nine months since 59.9 in September 2003.
Consumers feel current conditions are similar in impact to just before the credit card crisis of late 2003 or in the wake of the devastating Typhoon Maemi. An NSO official says the pessimistic forecast is due to oil price-triggered inflation.
Inflation is believed to have already crossed the psychological red line. June inflation growth was 5.5 percent, the highest in nine years and seven months. The Bank of Korea's inflation target of 3.5 percent was long surpassed in December.
Ordinary consumers feel they're on the edge of disaster. Researcher Song Joon-hyuk at the Korea Development Institute said that typically the bottom line of inflation growth is the economic growth rate. People cling to maintaining a similar standard of living even if prices rise, he said. The government has lowered the annual growth forecast to the upper 4 percent range but inflation falling to that level is unlikely. The government recently readjusted the inflation ceiling to 6 percent. Strategy and Finance Minister Kang Man-soo has said that if oil prices top US$170 a barrel, growth may slip to 3 percent and inflation rise to 6 percent.
Global oil prices, the main culprit behind the soaring inflation, reached $140.70 last Friday, more than double last year's average of $68.40. The government's psychological threshold is $150 a barrel at which point it plans to enforce emergency energy conservation measures on the private sector.
Investors meanwhile fear the stock index may tumble below the psychological bottom line of 1,500 points, and indeed the benchmark Korea Composite Stock Price Index (KOSPI) dipped below that mark at one point in trading Thursday. "If the KOSPI falls below 1,500, the stock market could plunge to as low as 1,400~1,450," said Joo Sang-chul of Kyobo Securities. "But this would be difficult, as foreigners are buying up stock futures and pension and other state funds are holding up the market."
The Bank of Korea held a Monetary Policy Committee meeting Thursday and retained the key interest rate at 5.0 percent for an 11th month, choosing to first prevent a recession before easing inflationary pressure. But in a news conference after the meeting BOK Governor Lee Seong-tae said, "The bank must deliberate on its original role in this difficult time of decision making with the slowing economy and rising inflation," hinting at a rate hike to prevent price growth rising above 6 percent.
(englishnews@chosun.com )
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