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Korea's household debt moderates, but gov't wary of potential resurgence

Published: 21 Feb. 2025, 17:39 Updated: 22 Feb. 2025, 20:39

SHIN HA-NEE
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From left: Financial Supervisory Service Gov. Lee Bok-hyun, Bank of Korea Gov. Rhee Chang-yong, acting President Choi Sang-mok and Financial Services Commission Chairman Kim Byoung-hwan pose for a photo ahead of a meeting at the government complex in central Seoul on Feb. 21. [MINISTRY OF ECONOMY AND FINANCE]

Korea’s household debt moderated to near prepandemic levels over the course of last year as the central bank maintained elevated policy rates until the eleventh hour.

Nationwide household debt, calculated as a percentage of GDP, was 90.5 percent at the end of 2024, down from 93.6 percent in 2023 and 89.6 percent from 2019, according to a preliminary estimate the Ministry of Economy and Finance announced Friday. The ministry will release the finalized figure in April.

The negative impact of household debt levels on economic growth expands when the ratio surpasses the 90 percent threshold, according to the BOK’s previous analysis.

While household debt was on a steady rise from 2004 to 2017, it surged through the pandemic era, from 89.6 percent by the end of 2019 to 97.1 percent in 2020, 98.7 percent in 2021, and 97.3 percent in 2022.

The stable debt situation could strengthen the case for an interest-rate cut by the Bank of Korea (BOK) amid mounting growth woes, a hawkish rate outlook at the U.S. Federal Reserve and market uncertainty spurred by U.S. President Donald Trump’s tariff threats — which may weaken the local currency against the dollar — which remain challenges.

Calls for the BOK to reduce its key interest rates have nevertheless been growing ahead of its Monetary Policy Board meeting slated for Tuesday. Stubbornly weak domestic demand and waning export momentum support the case for a rate cut, but lingering fears of currency depreciation and delayed U.S. rate cuts could deter the central bank from a reduction.

Acting President Choi Sang-mok warned that caution is necessary to prevent anticipation of a rate cut from stimulating a debt resurgence.

“We need to keep this year’s household debt level growth within the estimated nominal growth rate of 3.8 percent to further stabilize the household debt to GDP ratio to the 80 percent range, which is a comfortable level for the national economy,” Choi said Friday at a meeting on macroeconomic and financial affairs at the government complex in central Seoul with BOK Gov. Rhee Chang-yong, Financial Services Commission Chairman Kim Byoung-hwan and Financial Supervisory Service Gov. Lee Bok-hyun in attendance.

The government will announce its plan to manage household debt levels this month, the acting president added.

Fifty-five percent of bond experts, including analysts, expect the BOK to reduce its key rate at its upcoming meeting, according to a survey the Korea Financial Investment Association released Friday. This marked an increase from the 40 percent of respondents with the same prediction ahead of the previous rate-setting meeting in January. The remaining 45 percent predicted that the central bank would hold the rate steady in February.

BY SHIN HA-NEE [[email protected]]