South Korea's Rising Household Debt: A Global Perspective

South Korea has long grappled with high household debt levels, a situation exacerbated by the COVID-19 pandemic. As of the fourth quarter of last year, the country's household debt to GDP ratio stood at 91.7%, positioning it second among 44 countries worldwide, just behind Canada at 100.6%. This marks a significant shift from previous years when South Korea's ratio exceeded 100%, earning it the unenviable title of "the world's largest household debt nation" for nearly four years.

Understanding the Decline in Household Debt Ratio

The downward trend in South Korea's household debt ratio began after peaking at 99.2% at the end of the third quarter in 2021. By the end of the third quarter last year, the ratio had decreased to 90.7%, placing South Korea fifth among 44 countries. Despite this improvement, the country's household debt ratio remains significantly higher than the emerging market average of 49.1%, the G20 average of 61.2%, and the surveyed countries' average of 61.9%.

Challenges and Concerns

The excessive enthusiasm for housing investment, coupled with policies aimed at stimulating the real estate market, has kept South Korea's household loan ratio to GDP above 90%. This situation poses challenges for economic growth and monetary policy, as concerns arise that a surge in household loans following the lifting of land transaction permit zones this year could hinder the Bank of Korea's ability to lower the base interest rate despite economic recession.

Looking Ahead

Park Jong-woo, deputy governor of the Bank of Korea, expressed concerns at a recent press conference following the publication of the monetary credit policy report. He stated, "Last month's household loans increased slightly more than initially expected," adding, "Until February, the growth in household debt was assessed as 'stable,' but there is significant uncertainty about whether this assessment can be maintained thereafter."