(Bloomberg) — A crowd crush in Seoul that killed more than 150 people may result in weaker South Korean household spending, adding to pressures on the economy that range from rising interest rates to a global slowdown.
A string of festivals, concerts and sales promotions have been postponed or scrapped in response to the crowd surge that occurred during Halloween celebrations. President Yoon Suk Yeol apologized and ordered an investigation into the disaster — Korea’s deadliest since the 2014 Sewol ferry sinking.
The tragedy in Seoul’s central Itaewon neighborhood threatens to damp consumption, a key driver of economic growth that has helped cushion the impact of hotter inflation and deteriorating exports. The disaster may even prompt the Bank of Korea to lean toward a smaller rate hike when it meets later this month, economists said.
“It’s likely to have a larger impact on the economy than the Sewol sinking because it happened right in a busy district in Seoul,” said Ho Woei Chen, an economist at United Overseas Bank Ltd.
She had expected a half-percentage point rate hike at the Nov. 24 meeting, but after the disaster says a quarter-point move “may become more probable.”
Ticket sales for performing arts are already taking a hit, falling more than 30% last Saturday from a week earlier, when the crowd surge happened, according to data from the Korea Performing Arts Box Office Information System. Cinema ticket sales also dropped 20% to the lowest level in half a year, according to the Korean Film Council.
In 2014, private consumption as a component of gross domestic product contracted in the quarter when the ferry sinking occurred. The disaster claimed the lives of more than 300 people including 250 high school students.
It left a mark on Koreans who were shocked and saddened as they watched rescue efforts fail and bodies being retrieved from the water over the course of several weeks.
Consumer confidence declined after the Sewol sinking and didn’t recover for an extended period.
The crowd crush can’t be positive for the economy at a time when it’s facing rising rates, supply chain disruptions, high energy prices and winter Covid outbreaks, Labor Minister Lee Jung-sik said in an interview last week.
Korea Urges More ESG Focus on Women to Address Fertility Crisis
Previous disasters have damped consumption, a key driver of employment in a nation where the services sector is responsible for about two-thirds of jobs.
In August 2014, citing the impact from the Sewol sinking, the BOK lowered its key rate for the first time in more than a year. In October of that year, it delivered a follow-up cut, saying sentiment had yet to recover fully.
The difference now is that the BOK is in the midst of a 15-month tightening cycle and intends to raise rates further to curb inflation and try to keep pace with the Federal Reserve’s sharp hikes.
Still, BOK Governor Rhee Chang-yong said after last month’s half-point increase that some board members were concerned about an economic slowdown and voted for a smaller move. Korea’s economy decelerated last quarter, with trade deficits mounting and the won weakening to the lowest level in more than a decade.
“Consumption will be negatively affected,” said Sung Won Sohn, president of SS Economics and a professor at Loyola Marymount University. “I assume that the Bank of Korea will raise the interest rate but at a slower pace than expected before the tragedy.”
Economists didn’t provide specific estimates of the scale of the hit to consumer confidence or private consumption, saying it was too early to assess.
One economist expected public events to resume toward the end of the year during the holiday season, resulting in a reduced impact on the economy. In fact, consumption may already be weighed down by mounting financial burdens.
“We expect the strong momentum in Korea’s private consumption will fade as inflation and rising rates bite into households’ spending power,” said Sung Eun Jung, an economist at Oxford Economics, who forecasts a quarter-point hike by the BOK on Nov. 24.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
