Recovering Consumer Sentiment
The economy-stimulating policies of the government are becoming effective starting from the real estate market. Industrial loans are getting increased, and consumer sentiment, which has been depressed of late, is reviving.
The Bank of Korea (BOK) announced on August 27 that industrial loans during the second quarter this year totaled 860.9 trillion won (US$848.8 billion), a 16.5 trillion won (US$16.2 billion) increase from the previous quarter.
By industry, loans from the service industry increased the most by 10.6 trillion won (US$10.4 billion) compared to the previous quarter, 5.9 trillion won (US$5.8 billion) rose in the manufacturing industry, and 1 trillion won (US$987 million) in the agriculture, forestry, fishery, electricity and gas industry. On the other hand, loans in the construction industry declined by 1 trillion won (US$987 million).
Increasing loans in the service industry were led by real estate and lease businesses. For these businesses, loans increased by 5.4 trillion won (US$5.3 billion) during the second quarter, which was almost double the previous quarter (2.3 trillion won, US$2.2 billion). This is the largest growth since the second quarter in 2008 (6.2 trillion won, US$6.1 billion). Since the yields on real estate leasing are higher than interest costs, real estate owners are actively engaged in borrowing money. Especially as banks can secure the stable collateral of real estate, it is quite easy to borrow from them.
Choi Jung-tae, manager with the financial statistics team of BOK, explained, “Under the circumstances of low interest rates, real estate owners increased their loans, as yields on real estate leasing are higher than financing costs.”
As the loan demand of small enterprises, who are suffering from post-Sewol crisis effects, is increasing, the loan balance towards wholesalers, retailers, accommodation services, and restaurants rose by 2.9 trillion won (US$2.8 billion) for the first quarter as well. In the manufacturing industry, loans increased in metal processing products and machinery (1.9 trillion won, US$1.8 billion), other transportation equipment (1.1 trillion won, US$1.0 billion) and petroleum, chemicals, medicine and plastics (900 billion won, US$888 million).
Furthermore, consumer sentiment, which has been depressed after the Sewol crisis, is reviving.
Professionals view that the expectations and effects of economy-stimulating policies put out by Choi Kyung-hwan's economic team are being slowly realized. According to the report on consumer trends in August, the composite consumer sentiment index (CCSI) in August was 107, a 2p increase from the previous month (105). As this index is greater than 100, it means consumer expectations of the economy are positive.
The main reason for a rising CCI is the effects of government policies. In fact, the government announced 41 trillion won (US$40 billion) worth of economy stimulating plans, amendments to tax bills, and reviving policies for the service industry. The BOK also ascertained its strong determination to revive the economy by lowering the standard interest rate by 0.25 percentage points.
Jung Moon-gab, senior manager with the statistics research team of BOK, explained, “Due to the economy stimulating policies of the new economy team and lowered standard interest rate of BOK, expectations on economic recovery became higher.”