(file photo) /News 1 
(file photo) /News 1
(Seoul = News 1) Reporter Kim Hye-ji = As household debt increases day by day and the high interest rate and high inflation situation prolongs, the consumption power of our people is not recovering at all. Recently, the debt per household is estimated to be around 84 million won, and the loan interest rate remains unchanged despite the base interest rate cut last month, blocking a breakthrough in the shrinking domestic economy.
According to the Bank of Korea on the 24th, the household credit balance as of the end of September was 1,913.8 trillion won, the highest ever since statistics began to be compiled in 2002. It is an increase of 18 trillion won compared to the second quarter of last year, and the increase has reached its highest level in three years since the third quarter of 2021.
According to Statistics Korea, as of 2023, the total number of households in Korea was 22.73 million.
If you divide the household credit balance by the number of households, the average debt per household is 84.2 million won. Considering that the average monthly salary of office workers last year was around 3.64 million won, this is not a small amount.
In addition, despite the base interest rate cut last month, bank loan interest rates actually rose due to the government and financial authorities’ management of household debt. Even in the case of some banks’ credit loan interest rates, they rose by as much as 1 percentage point (p) within a month after the Bank of Korea’s base interest rate cut on the 11th of last month.
The problem is that the burden of repaying the loan principal and interest on households has increased as the high interest rate and high inflation phase has continued for more than two years.
In fact, as a result of the Bank of Korea’s calculations based on its own database (DB), the average total debt service ratio (DSR) of all household borrowers was estimated at 38.3% as of the end of June. DSR is the amount of principal and interest repaid each year divided by annual income.
In other words, our households are spending about 40% of their income to repay financial institution debt.
In particular, the number of borrowers (DSR 70% or more) who spend more than 70% of their annual salary on debt repayment reached 2.75 million. In addition, because the DSR was over 100%, it was estimated that 1.57 million (7.9%) of borrowers were spending all or more of their annual salary to repay principal and interest.
Currently, the Korean economy is in desperate need of additional growth engines as exports are showing a weaker-than-expected performance. According to the Ministry of Trade, Industry and Energy, Korea’s average daily exports in October were $2.61 billion, down 0.3% from the same month last year, showing negative growth for the first time in 13 months.
Meanwhile, it is pointed out that domestic demand can only prevent an economic downturn if it recovers from the slump that has been experienced thanks to a cut in the base interest rate. Jeon Gyu-yeon, a researcher at Hana Securities, said, “As the interest rate reduction policies of major countries’ central banks are aligned, the ripple effect of interest rate cuts on domestic demand and the speed of economic rebound will be important for the global economy next year.”
Researcher Jeon said, “The speed of domestic demand recovery will determine whether the Korean economy achieves a 2% growth rate next year,” and added, “Korean exports are limited in export items other than semiconductors and the global manufacturing economy is also sluggish, so weakening momentum is inevitable.” .
However, if domestic demand continues to slow due to the heavy burden of principal and interest repayment on households, the only remaining alternatives are corporate investment and government consumption. Researcher Jeon said, “Despite a slowdown in consumption, the United States is expected to continue its growth rate in the 2% range next year as investment revitalization and fiscal expansion support growth.”
In addition, it is difficult to expect that the pace of further interest rate cuts by the Bank of Korea will be rapid for the time being, which is pointed out as a negative factor for revitalizing domestic demand.
Researcher Jeon predicted, “The U.S. Federal Reserve (Fed) is expected to implement additional interest rate cuts by the end of this year, while the Bank of Korea will slow down its interest rate cuts due to concerns about the real estate market and household debt.”
This is why there are concerns that the economic temperature felt by households will not improve much in the new year.
Jeong Yong-taek, a researcher at IBK Investment & Securities, said, “It is highly likely that the economic performance felt by economic entities in the future will fall below the economic indicators indicated by numbers.” He added, “Looking at the loan behavior survey in the fourth quarter, unlike households’ demand for home mortgage loans, demand for general loans has increased significantly. “The upward trend continues, showing that there are no conditions for household consumption to increase in the future,” he analyzed.
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What are the potential long-term consequences for South Korea’s economic growth if the current trend of rising household debt persists?
## Household Debt & Economic Recovery in Korea: A Discussion
**Introduction:**
Welcome to World Today News. Today, we’re tackling the critical issue of rising household debt in South Korea and its impact on the country’s economic recovery. Joining us are two esteemed experts: Dr. Kim Min-jung, Professor of Economics at Seoul National University and Mr. Lee Sang-hyun, Senior Researcher at the Korea Economic Research Institute.
**Section 1: The Weight of Debt**
* **Dr. Kim Min-jung,** the article highlights a record-high household debt of 84.2 million won per household. Could you elaborate on the factors contributing to this surge and the potential consequences for individual households?
* **Mr. Lee Sang-hyun,** we’ve seen a disparity between the Bank of Korea’s base interest rate cut and the actual loan interest rates experienced by households. What are the potential reasons for this gap, and how might it impact consumer confidence and spending habits?
* **Dr. Kim Min-jung**, the article mentions a growing number of households with a DSR exceeding 70%, even 100%. Could you shed light on the implications of such a high debt burden on the overall financial health of Korean households?
**Section 2: Economic Recovery: A Path Forward?**
* **Mr. Lee Sang-hyun,** against the backdrop of sluggish exports, how crucial is the revival of domestic demand for Korea’s economic recovery? What strategies could stimulate consumer spending in light of the high debt burden?
* **Dr. Kim Min-jung,** the article suggests that corporate investment and government consumption might be key drivers of growth if domestic demand falters. However, are these sustainable solutions in the long term, and what are the potential risks associated with such a strategy?
* **Mr. Lee Sang-hyun,** considering the global economic landscape, do you foresee a rapid decrease in interest rates by the Bank of Korea? How might this impact the pace of economic recovery and what alternative solutions could be explored?
**Section 3: Looking Ahead**
* **Both guests,** what would you say are the most pressing concerns regarding the confluence of household debt and economic stagnation?
* **Dr. Kim Min-jung,** what policy measures could the government implement to alleviate the debt burden on households while fostering sustainable economic growth?
* **Mr. Lee Sang-hyun,** what message would you like to convey to Korean households and policymakers regarding the current economic climate and the path ahead?
* **Concluding Remarks:**
Thank you, Dr. Kim Min-jung and Mr. Lee Sang-hyun, for sharing your valuable insights. This discussion sheds light on the complex challenges facing Korea’s economy. The path forward requires a delicate balance between addressing household debt vulnerability and fostering sustainable economic growth.
We encourage our viewers to stay informed and engaged in the ongoing dialog surrounding these critical issues.
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