{"id":2202411,"date":"2023-10-03T17:31:58","date_gmt":"2023-10-03T08:31:58","guid":{"rendered":"https:\/\/koreapro.org\/?p=2202411"},"modified":"2023-10-04T19:11:13","modified_gmt":"2023-10-04T10:11:13","slug":"south-korea-faces-economic-inflection-point-as-debt-and-monetary-challenges-loom","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2023\/10\/south-korea-faces-economic-inflection-point-as-debt-and-monetary-challenges-loom\/","title":{"rendered":"South Korea faces economic inflection point as debt and monetary challenges loom"},"content":{"rendered":"
South Korea faces significant economic headwinds as household and corporate debt levels surge.\u00a0<\/span><\/p>\n The Bank of Korea (BOK) is now at a crossroads, considering its monetary policy adjustments in response to domestic inflationary pressures and the U.S. Federal Reserve\u2019s decisions.\u00a0<\/span><\/p>\n The potential delay in the BOK\u2019s rate cuts amid rising debt and external monetary influences could have profound implications for South Korea\u2019s economic future.<\/span><\/p>\n ESCALATING DEBT<\/b><\/p>\n South Korea\u2019s economic indicators reveal a concerning trend: a rapid increase in debt across its household and corporate sectors. Over the past five years, the <\/span>household debt-to-gross domestic product<\/span><\/a> (GDP) ratio has risen sharply. This surge isn\u2019t limited to households. Corporate debt has also swelled.<\/span><\/p>\n The data is telling. According to the International Monetary Fund (IMF), South Korea\u2019s household debt as a percentage of its GDP stood at <\/span>105.09% in 2022<\/span><\/a>, representing a significant jump of 13.09 percentage points from the <\/span>92% recorded in 2017<\/span><\/a>.<\/span><\/p>\n A combination of factors potentially drives this surge. A significant contributor is the rise in <\/span>housing-backed loans<\/span><\/a>. South Korea\u2019s housing purchase system, coupled with a low-interest-rate environment, has substantially increased these loans. This trend, in turn, has played a pivotal role in the overall rise in household debt.<\/span><\/p>\n On the corporate front, the situation is equally concerning. The ratio of <\/span>non-financial corporate debt to GDP<\/span><\/a> has risen from 93% in 2017 to 120% in 2022, marking an increase of some 27 percentage points. This growth rate is second only to Luxembourg\u2019s, underscoring the urgency of the situation.<\/span><\/p>\n The trajectory of corporate debt has not always been this steep. After the 2008 financial crisis, the IMF\u2019s records show that South Korea\u2019s corporate debt ratio initially increased to 100.46% in 2009. However, since 2017, there has been a noticeable upward trend.<\/span><\/p>\n