Consumer confidence rebounded surprisingly in December, offsetting some of the decline from the previous four months. The composite consumer sentiment index rose for the first time in five months to 99.5 in December (up from 97.2 in November). Expected future interest rate cuts by the Federal Reserve and the Bank of Korea and resilient labor conditions may have led to the biggest improvement in consumer confidence in the economic situation. We believe that a recovery in exports and stock markets could also be one of the reasons for this month’s unexpected turnaround, but we are not sure if the optimistic sentiment is temporary or sustainable going forward, as expectations about the House prices, which is the biggest risk factor for short-term growth and the most sensitive variable in influencing consumer confidence, have plummeted for three months. Meanwhile, inflation expectations for the next 12 months fell to 3.2%, the lowest level since May 2022, so this could be a sign of relief for the Bank of Korea.
Despite the ongoing restructuring of construction and project financing, the improvement in business sentiment is believed to be largely due to the recovery of the semiconductor cycle. Local surveys conducted by the Federation of Korean Industry (95.2 in December versus 91.2 in November) and the Bank of Korea (72 in January versus 72 in December for the manufacturing sector, 73 in January versus 71 in December for the non-manufacturing sector) improved.
However, with the domestic construction industry struggling and credit conditions expected to tighten, we are cautious about giving a positive assessment of future economic growth in the near term.