Consumer gloom hits South Korea

Weakening consumer spending could mean low interest rates

Consumers in South Korea are at their most negative for almost four years, a new survey shows.

The news, which suggests that domestic demand is in trouble, is seen as a threat to plans to prop up the economy.

The Seoul government wants to double economic growth this year from 2003's anaemic 3.1%.

Stubbornly high consumer debt, steep oil prices, soaring joblessness and rising prices are at the root of the problem, economists said.

"You don't see a single bright spot except for exports, including financial markets, job market data and consumer prices," said Ryu Seung-sun, economist at Mirae Asset Securities.

Low rates

The slide in the main consumer confidence measure to 89.6 in July from 92.2 a month earlier took the index to its lowest ebb since December 2000.

Inflation is of course a worry, but... sustainable economic growth is still the top priority for the central bank Rim Chan-ik, Hanwha Securities

The news, which showed a third straight month of decline for the National Statistical Office's consumer expectation index, comes after recent figures which showed industrial output slowing.

It is likely to add to pressure on the Bank of Korea to keep interest rates at a record low of 3.75%.

A surge in inflation - producer prices were up 7% in the year to July - had indicated it was time for the Bank to follow the lead of the US and UK in nudging rates back up.

"Inflation is of course a worry," said Rim Chan-ik, head of bond trading at Hanwha Securities in Seoul.

"But there's a consensus in the market that sustainable economic growth is still the top priority for the central bank."