
The Korean economy faces a heightened risk of recession, strained by stalled monetary easing by the Bank of Korea (BOK), a Moody’s Analytics economist said.
Underpinning the view is Korea’shigh household debt-to-GDP ratio of over 94 percent, despite the base year change that lowered the figure to below 100 percent. It is among the highest of major economies. The figure for corporate debt to GDP remains the fifth-highest.
Further amplifying the concern is weakening domestic consumption, as highlighted by a 0.2 percent quarter-on-quarter GDP contraction in the April-to-June period. It was the first quarterly retreat since the fourth quarter of 2022.
“If interest rates stay too high for too long, Korea’s economy could fall into recession,” Moody’s Analytics Associate Economist Dave Chia said in an interview with The Korea Times.
The sustained tightening continues to fan financial 한국을 stability concerns, as evidenced by a rise in the number of low-income earners and small construction firms defaulting on their debts.
This coupled with surging household debt is a major red flag. The household debt-to GDP ratio of 93.5 percent was down from 100.4 percent, due to the revision of the base year to 2020 from 2015.
“Korea’s high household debt poses a long-term threat to the economy,” he said. “A recession could drive up unemployment, suppress real wage growth, and push households to default on their debt obligations.”
The series of defaults of construction firms and low-income earners earlier this year are explained by high debt-servicing costs, a serious risk factor that had been contained due to prompt action by the Financial Services Commission