Korea's Household Debt Rising Faster Than GDP

      December 14, 2021 11:47

      The rise in Korea's household debt has outstripped GDP growth for 16 years running, the Bank of Korea said Monday.

      The central bank said Korea is a rare case since other countries' household debt ratio tends to dwindle after rising for three to four years on average.

      The bank compared the household-debt-to-GDP trends of 41 countries with Korea's and warned that a continuation of such sharp increases in household debt causes a country's economy to regress and take a long time to recover.

      Korea saw a particularly high growth of private-sector debt since the coronavirus pandemic started, resulting in a high risk of economic contraction in the event of an insolvency crisis.

      Household debt rose 10 percentage points and corporate debt 13 percentage points in the pandemic compared to the previous two years. Over the same period, government debt increased only seven percentage points.

      In contrast, advanced countries saw 20 percentage point increases in government debt while household debt grew only three percentage points and corporate debt just eight points.

      A BOK official said, "Housing loans increased sharply, while the repayment capacity of many small businesses especially in the hospitality industry has weakened significantly. A global financial crisis or other external shock could exacerbate jitters surrounding the Korean economy and impact investment and consumption," the bank warned.

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