The Korea Herald


Korea’s household debt highest among major economies: report

By Choi Si-young

Published : June 6, 2022 - 15:15

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South Korea’s household debt topped 104 percent of gross domestic product, marking the highest level among 36 major economies, the Institute of International Finance’s data showed.

Korea’s household debt fell to 104.3 percent of GDP in the first quarter of this year from 105 percent in the same period a year earlier, still outrunning rivals by a large margin, according to the report the Washington-based private financial industry association released May 18.

Household debt levels for the other surveyed economies remained below 100 percent. Lebanon borrowed 97.8 percent of its GDP in the first quarter this year, making it the second-most indebted country in the group.

South Korea’s corporate debt, which was the seventh highest, rose to second highest in the same period, from 111.3 percent to 116.8 percent. Only Vietnam outpaced Seoul at 140.2 percent this year, from 129.2 percent last year.

Debt owed by the South Korean government this year accounted for 44.6 percent of GDP, compared with last year’s 45.8 percent, in what is seen as a relatively moderate debt burden that puts the country at 25th out of 36 countries surveyed.

But the IIF said South Korea was one of three countries alongside Vietnam and Thailand to have reported the largest increase in net borrowing between 2021 and 2022. Global debt levels in the same period showed a sign of decline, with EU countries showing palpable improvements.

A week earlier, South Korea’s National Assembly approved an extra budget aimed at helping small businesses hit hardest by COVID-19, despite previous support budgets and concerns over red-hot inflation seeping into the economy and shrinking growth.

The Bank of Korea, which lifted interest rates three times this year, is expected to back more hikes beginning as early as July, amid rising prices prompted by a global surge in materials and food costs. The consumer price index rose 5.4 percent in May from the previous year, hitting a 14-year high.

“We have to look for a soft economic landing because we know from experience that growing debt could destabilize everything,” BOK Gov. Rhee Chang-yong said.

The South Korean government is expected to revise its growth and inflation forecasts for this year. An official at the Finance Ministry suggested raising the inflation target to a 4 percent range -- double the projection made last year -- while slashing the growth forecast to a 2 percent range from the current 3.1 percent.