South Korea
In the first quarter, the size of South Korea's household debt surpassed the Gross Domestic Product (GDP). Among the 34 major countries, South Korea was the only one unable to repay all household debt with its annual national income. It was also the sole country among the major economies globally where household debt was higher than GDP. Despite a strong tightening trend, corporate debt also increased, ranking fourth-fastest in the world.
According to the Global Debt Monitor report from the Institute of International Finance (IIF) on May 29, based on the first quarter, South Korea had the highest household debt-to-GDP ratio among 34 countries (the eurozone was a single statistic) at 102.2%. Hong Kong followed at 95.1%, then Thailand (85.7%), the U.K. (81.6%), the U.S. (73.0%), and Malaysia (66.1%) in that order.
South Korea has maintained its top position with a household debt-to-GDP ratio exceeding 90% even before the COVID-19 pandemic, according to quarterly data. The explosion of household debt due to skyrocketing real estate prices, spurred by low interest rates during the COVID-19 pandemic, and the fervor of “debt investment” in stocks and coins led to the ratio reaching 100.6% in the third quarter of 2020, surpassing 100% for the first time. While it briefly conceded first place to Lebanon, where GDP plummeted by about 25% due to the Beirut port explosion in August 2020, it regained its position in 2021, skyrocketing to the 105% line.
The household debt-to-GDP ratio in the first quarter was down 3.3% from the same period last year (105.5%). The decline was the sixth-largest after Poland (5.8 points), Malaysia (5.5 points), Singapore (4.6 points), Thailand (4.3 points), and the U.K. (3.7 points). This suggests a successful reduction in household debt due to the strong tightening stance of the Bank of Korea.
However, household debt is growing again due to the recent drop in market interest rates, contradicting high base rates. According to the Financial Services Commission and the Financial Supervisory Service, household loans in the entire financial sector increased by 2 trillion won at the end of April, turning to an increase for the first time in eight months since August 2022.
The Bank of Korea warned in its report last month that when the size of household debt exceeds 80% of GDP, the likelihood of an economic downturn increases.