COVID-19 Pulls Consumer Sentiment Lower Than During Financial Crisis Over 3 Months

[Asia Economy Reporter Eunbyeol Kim] After the novel coronavirus infection (COVID-19) spread domestically, the decline in consumer sentiment over three months exceeded the level seen during the financial crisis. This confirms numerically that the impact of COVID-19 on consumer sentiment is greater than that of the financial crisis.

According to the "April 2020 Consumer Sentiment Survey" released by the Bank of Korea on the 28th, the CCSI this month fell by 7.6 points from the previous month to 70.8. This is the lowest level since December 2008 (67.7). Although the decline narrowed compared to March (-18.5 points), the total drop from January (104.2), when COVID-19 began spreading domestically, to April reached 33.4 points. This surpasses the decline in consumer sentiment from September 2008, when Lehman Brothers went bankrupt, to December of the same year (90.6→67.7, a 22.9-point drop).

Kwon Cheo-yoon, head of the Statistical Survey Team at the Bank of Korea’s Economic Statistics Bureau, explained, "The CCSI decline in March already exceeded the 12.7-point drop seen in October after the Lehman crisis in September 2008, and looking at the trend over the following months until the CCSI rebounded, consumer sentiment fell much more sharply. At least, the impact of COVID-19 on consumer sentiment now is greater than during the financial crisis."

Depending on the degree of COVID-19 mitigation, consumer sentiment may contract further next month. Team leader Kwon added, "The main factor currently influencing the sentiment index is COVID-19. Consumer sentiment will also be affected depending on how COVID-19 develops in May."

The CCSI exceeding 100 means consumers are optimistic about the future economy and likely to increase consumption. Conversely, a score below 100 indicates consumers are tightening their wallets. The CCSI has fluctuated with major international, political, and social events. It plummeted after the Great East Japan Earthquake in early 2011, declined following the Sewol ferry disaster in 2014, and fell below 100 in November 2016 during the impeachment phase of former President Park Geun-hye.

The detailed Consumer Sentiment Indices (CSI) that make up the CCSI all fell to financial crisis levels. The Current Economic Conditions CSI, which reflects the current economic perception, dropped 7 points to 31, while the Household Income Outlook and Living Conditions Outlook CSI each fell 4 points to 83 and 79, respectively. The Future Economic Outlook CSI also declined 3 points to 59. All these indices recorded their lowest levels since December 2008.

The Consumption Expenditure Outlook fell 6 points from 93 to 87, marking the lowest since July 2008, and the Current Living Conditions CSI dropped from 83 to 77, the lowest since March 2009.

Although the decline in CSI by category mostly narrowed compared to March, the Housing Price Outlook CSI (96) saw a larger month-on-month drop of 16 points. Team leader Kwon stated, "Due to the COVID-19 situation, concerns about economic recession, and government regulatory policies, the outlook for housing prices has worsened, leading to a decline in the Housing Price Outlook CSI."

The Wage Level Outlook CSI also fell 7 points from 109 last month to 102.

The expected inflation rate, which indicates consumer price inflation expectations over the next year, remained unchanged at 1.7% from the previous month. The inflation perception, reflecting awareness of consumer price inflation over the past year, recorded 1.8%, maintaining the previous month’s level.

This content was produced with the assistance of AI translation services.