Home Consumer debt Korea far exceeds G20 average in collective debt growth

Korea far exceeds G20 average in collective debt growth

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A promotional brochure for mortgage products is seen at a branch of a commercial bank in Seoul on April 18. (Yonhap)

SEJONG — South Korea has seen the ratio of collective debt — held by government, households and the corporate sector — to its gross domestic product rise sharply in recent years since 2017, and even during the pandemic.

In addition, the country’s collective debt-to-GDP ratio was found to have continued to rise amid the COVID-19 pandemic, while G20 countries on average saw a decline in this figure, it said on Wednesday. a local research institute, citing the Bank for International Colonies.

According to the Korea Institute of Economic Research, the country’s collective debt-to-GDP ratio jumped 48.5 percentage points, from 217.8 percent in 2017 to 266.3 percent in the third quarter of 2021.

This exceeded the average growth of 19.6 percentage points recorded in G20 countries during the corresponding period.

Compared to 2020, G20 countries saw the ratio drop sharply by 23.8 percentage points in the third quarter of 2021. But Korea posted a continuous increase of 8.1% during the pandemic.

As a result, Korea’s 266.3% became comparable to the G20 average of 267.7%, although Korea had a relatively low collective debt-to-GDP ratio in the 2010s.

“Major economies have shown a decline in the ratio since COVID-19 hit (in 2020). The Korean government, households and businesses are simultaneously experiencing increased debt,” said KERI researcher Lim Dong-won.

Korea recorded a 17.3 percentage point increase in the household debt-to-GDP ratio from 89.4% in 2017 to 106.7% in the third quarter of 2021.

This topped a 3 percentage point increase, held by G20 countries, over the same period. Among the group of 20 advanced and emerging countries, Korea was one of only two economies with China to post a growth of more than 10%.

Korea’s corporate sector also saw a 21.2 percentage point increase in the ratio to 113.7% in the third quarter of 2021.

KERI is concerned about a situation where real household income has declined in the wake of rising consumer prices since last year, while household debt is rising.

Data from Statistics Korea showed that real household income fell 1% year-on-year in the first quarter and 3.1% in the second quarter of 2021. This is the first negative growth in four years.

KERI researcher Lim said household debt risk would increase under a scenario in which the Bank of Korea makes additional benchmark interest rate hikes to rein in consumer prices.

He predicted that a possible higher interest rate burden on loans to households, in addition to a reduction in real income, would have negative impacts on the overall economy.

“Continued debt growth at an excessive rate could lead to a fiscal and financial crisis,” he said. “(The government) should seek to reduce household and corporate debt through deregulation, which would be tied to revenue growth (of both sectors).”

By Kim Yon-se ([email protected])