The economic sentiment among South Koreans shown in news reports has hit its worst since the beginning of the COVID-19 pandemic, amid growing market concern over US-led interest rate hikes and the Korean won’s descent against the greenback.
The Bank of Korea said on Thursday that the News Sentiment Index has fallen 7.72 points from a month ago to 81.25 in October, the lowest since 79.16 in April 2020.
The NSI is a machine learning-based indicator of econominc sentiment expressed in news reports. It is calculated by extracting 10,000 random sample sentences daily from articles on the economy of some 50 media organizations, and classifying them under positive, negative or neutral.
If the index is higher than 100, it means that economic sentiment is more optimistic compared to the average sentiment from 2005 to 2021. An index under 100 means it’s more pessimistic.
The NSI hovered over 100 until May, plunged to 85.64 in June, and climbed again to 91.72 in July and 99.1 in August. Then it fell again to under 90 in September, and close to 80 last month.
The BOK developed the NSI in February 2020, and unveiled the results of its research on April 2021. The central bank began announcing the NSI since February this year, based on a statistics system introduced in September last year.
The BOK sees the NSI as an indicator that reflects sentiments about a month prior to the Composite Consumer Sentiment Index (CCSI), and between one and two months prior to other major economic indices.
A downturn in the NSI is therefore likely to lead to a decline of the CCSI next month.
The BOK attributes the NSI’s plunge in October largely to the US Federal Reserve's continued rate hikes, which led the BOK to raise its benchmark interest rate by 0.5 percentage point on Oct. 12.
As the US dollar continues to be traded in the 1,400-won range, fears of a steeper rise in prices also affected the NSI.
“The October NSI tumbled amid concerns that the US Fed will further constrain the economy,” a BOK official said.
“But with expectations within the US that the Fed will slow down rate increases, the NSI went up in the last week,” the official added.
(sophie@heraldcorp.com)
