Korea – sentiment drops again
Business confidence remains extremely weak, and consumer confidence isn't a whole lot better. That being the case, the BOK is going to want to cut further, but inflation readings in the sentiment surveys aren't giving the all-clear for an aggressive loosening.
Yesterday's consumer confidence survey from the BOK showed a reversal of last month's tick-up, keeping the level well below the long-term average of the survey. Today's business sentiment survey looks even weaker. The headline measure ticked down again in the April forecast, and has now been lower only three times in the last 20 years. The diffusion across the individual sectors did tick up, but not nearly by enough to suggest that the worst is yet over.
Sentiment towards the domestic market remains the weakest, with confidence in the construction industry remaining at levels not seen since the depths of the 2008 financial crisis. But the big change in recent months has been the faltering of sentiment towards the external sector. That's an important shift: as noted by several members in the BOK's last minutes, it was exports that had been supporting the cycle in 2024.
Inflation readings aren't too troubling, but don't suggest the BOK can move without caution to address the clear weakness in activity. Manufacturing pricing is above long-term averages, even if it is some far from the inflationary peaks of recent years. Relative to that, property and general price expectations in the consumer survey are weaker. However, house price expectations ticked up in March, and at 2.7%, overall expected inflation is still above the BOK's target.
