Pessimism prevails among consumers

By William Sim  |   2008-6-26  |     NEWSPAPER EDITION

SOUTH Korea's consumer confidence slumped to the lowest level in more than seven years as spiraling food and energy costs sapped people's spending power.

The sentiment index dropped to 86 in the second quarter, the lowest since the end of 2000, from 105 in the previous three months, the Bank of Korea said yesterday. A reading of less than 100 indicates pessimists outnumber optimists, Bloomberg News said.

The weakening won, Asia's second-worst performer against the dollar this year, has exacerbated price pressures by increasing the cost of imported goods.

President Lee Myung Bak is facing a slump in popularity as surging fuel expenses push inflation to a seven-year high, adding to the burden on households, already struggling with record amounts of debt.

"Sentiment deteriorated more than we thought, and this will further curtail household spending," said Go You Sun, an economist at Daewoo Securities Co in Seoul. "The outlook depends on oil prices, which are people's biggest concern and driving up inflation."

The International Monetary Fund yesterday forecast South Korea's US$970-billion economy will grow 4.1 percent in 2008, which would be the weakest pace in five years.

Economic expansions across the globe may be under threat as consumers rein in their spending to pay higher living costs.

Americans were at the most negative in 16 years in June, German consumer sentiment for July dropped to the lowest in more than two years and confidence among Italians faltered this month, figures yesterday showed. New Zealanders confidence slumped to a 17-year low in the second quarter.

South Korea's currency slipped 0.2 percent to 1,035.10 versus the dollar.