S. Korean Confidence Falls After Death of Kim Jong Il: Econo

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Dec. 27 (Bloomberg) -- South Korean consumer confidence fell to a three-month low in December, as concern the political outlook in the North will worsen in the wake of Kim Jong Il’s death compounds the risk from Europe’s debt crisis.

The sentiment index fell to 99, from 103 in November, the Bank of Korea said in an e-mailed statement today. A reading below 100 indicates pessimists outnumber optimists. The survey was conducted between Dec. 14 and Dec. 21. North Korea announced the death of its leader on Dec. 19, with his son Kim Jong Un, thought to be under 30, to succeed as ruler.

Policy makers in the South pledged to take steps as needed to stabilize markets in the aftermath of the North’s announcement, and an initial slump in equities was recouped within days. While the government said Dec. 21 that South Korea had so far seen little impact to its economy, Asia’s fourth largest, any sign of prolonged impact to consumer spending may spur monetary and fiscal stimulus, economist Kong Dong Rak said.

“We don’t know what will happen in North Korea and this makes people so wary,” said Kong, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul. “Both the central bank and government may have to come up with stimulus if consumers and companies reduce spending in fear of worse things in North Korea or Europe.”

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The Bank of Korea kept the benchmark seven-day repurchase rate unchanged at 3.25 percent for a sixth straight meeting this month, refraining from raising borrowing costs as the deepening European crisis and global slowdown imperil exports by companies including Hyundai Motor Co. and Samsung Electronics Co. The central bank expects economic growth in the country to slow to 3.7 percent and inflation to ease next year.

Stocks Fall

South Korea’s benchmark Kospi Index of stocks, which dropped 3.4 percent on Dec. 19, the day reports emerged of Kim’s death, fell 0.6 percent as of 11:14 a.m. in Seoul today. The won declined 0.1 percent to 1,156.4 a dollar, after falling 1.4 percent on Dec. 19.

Most Asian stocks fell amid slow holiday trading, with the regional benchmark winding down its worst year since 2008, as Bank of Japan minutes from a November meeting highlighted downside risks to the economy and South Korean confidence slid. The MSCI Asia Pacific Index declined 0.2 percent as of 11:15 a.m. in Tokyo. The measure is headed for a 17 percent decline this year, its biggest annual loss since 2008.

A “few” Bank of Japan board members said financial-market turmoil from the European debt crisis and the yen’s appreciation were increasing risks for growth, according to a record of last month’s board meeting.

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‘Downside Risks’

Those members “pointed to the possibility that downside risks to the economy had increased somewhat since the previous meeting” held in October, according to minutes of the Nov. 15- 16 gathering published today in Tokyo. The BOJ refrained from altering policy at the time, and also kept its asset purchases and benchmark interest rate unchanged this month.

Today’s report didn’t specify how many people shared that view and members in the record aren’t identified by name. The central bank last week lowered its economic assessment for a second month at its December board meeting.

Elsewhere in Asia, China’s industrial-profit growth slowed to 24.4 percent in the 11 months through November, a report showed today, adding to evidence the government may need to ease policy to protect the nation’s economic expansion.

In the day ahead, Finland is scheduled to release consumer and business confidence reports for December, while the Netherlands will release producer confidence data. In the U.S., the Conference Board’s consumer confidence index may increase to 58.6 in December, according to the median of 61 estimates ahead of a release today.

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Korean Production

The South Korean consumer confidence index released today was based on survey responses from 2,042 households in 56 cities.

South Korea’s industrial-production growth probably slowed a second month to 5.9 percent in November, according to the median of 12 estimates in a Bloomberg News survey ahead of a Dec. 29 report. Inflation may slow to 4 percent this month, a separate survey showed before a Dec. 30 report.

The North’s ruling party has named Kim Jong Un as head of its central committee, just a week after his father’s death on Dec. 17, adding to the official Korean Central News Agency’s recent references to him as “supreme leader of the revolutionary armed forces” and “great successor” to his late father and grandfather, Kim Il Sung.

Geopolitical risks around the Korean peninsula may rise and the death of Kim Jong Il may hurt South Korea’s growth, Kwon Young Sun, a Hong Kong-based economist at Nomura Holdings Inc., said on Dec. 19.

Economic Strength

Still, the nation has so far seen little impact to its economy since the death of the North Korean leader, Deputy Finance Minister Kang Ho In told reporters Dec. 21. The nation’s exports rose more than a tenth through Dec. 19 compared with the same period last year, Kang said.

Kim Jong Il’s death hasn’t constrained South Korea’s credit ratings, Moody’s Investors Service said in a Dec. 22 report. The outlook for Korea’s A1 local and foreign government bond ratings remains stable, given the country’s “very high degree of economic strength, as well as high degree of institutional and government financial strengths,” the rating company said, adding that the “robust state” of the South Korea-U.S. alliance will provide a strong deterrence to war.

Finance Minister Bahk Jae Wan told reporters yesterday that next year will be a critical time for the economy as it grapples with the European debt crisis, general and presidential elections, and political transition in North Korea. The government and the central bank have yet to change their economic forecasts even as they said geopolitical risks are adding to uncertainties after the death of the North Korean leader.

--With assistance from Chris Anstey and Lily Nonomiya in Tokyo, Sarina Yoo and Brett Miller in Seoul, Ailing Tan in Singapore. Editors: Stephanie Phang, Iain Wilson

To contact the reporter on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net