New economic data from Korea reveals that everyone was not ready to just go on after the Sewol ferry tragedy.
“The consumer sentiment index declined rather sharply in May, from 108 to 105, the lowest level since September last year,” noted Societe Generale’s Suktae Oh. “We think that this decline was clearly caused by the Sewol disaster.”
On April 16, the Sewol sank off the southwest coast of South Korea. Just 172 of 476 passengers were rescued. Most of those on board were students.
Hard measures of economic activity were also sluggish or negative during the most recent reporting period. Retail sales fell by 1.7% month-over-month in April. Industrial production climbed by just 0.1% month-over-month, but fell 2.6% year-over-year.
The good news for the economy is that this is likely to be short term. However, Oh does not rule out the possibility that it could affect monetary policy (emphasis added):
…we believe that these negative impacts will be short lived , perhaps only impacting Q2 GDP, as momentum on the domestic demand recovery will continue to be supported by factors like labour market strength and accommodative monetary policy. Although we should carefully monitor the data for a few months, we don’t think that the negative impacts from the Sewol disaster will change the direction of monetary and fiscal policy. In other words, we don’t expect a BoK rate cut or a further fiscal stimulus package via a supplementary budget purely based on the negative impacts of the Sewol disaster. If anything, these negative impacts may merely put off the timing of the next BoK rate hike for a few months.
But Oh reiterates that a delay in monetary tightening is unlikely.
“Although some policymakers expressed concern about these negative impacts, we believe that they are temporary and will not change the direction of macroeconomic policy,” he said.
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