Korea’s total debt to GDP ratio hit a record high to 289.2% in 2Q, with debt growing much faster than economic output
September 24, 2013 Leave a comment
2013-09-23 16:11
Debt-to-GDP ratio hits record high
By Kim Rahn
The nation’s total debt to gross domestic product (GDP) ratio hit a record high in the second quarters of this year, with debt growing much faster than economic output.
Data from the Bank of Korea showed Sunday that combined debt held by households, companies and the government was 3.74 quadrillion won ($3.45 trillion) as of the end of June. This is 289.8 percent of GDP for the last one year, larger than the previous record during the height of the global financial crisis of 285.2 percent in the second quarter of 2009.
The debt to GDP ratio was around 220 percent in 2003. But it rose to 236.5 percent at the end of 2006, to 245.9 percent in 2007 and 273.7 percent in 2008.Debt held by central and local governments was 135.3 trillion won in the second quarter of 2003, but almost quadrupled over the last decade to 517.9 trillion won.
That at non-financial companies also jumped from 975.3 trillion won to 2.04 quadrillion during the same period, while debt at households and non-profit organizations more than doubled from 540.3 trillion won to 1.18 quadrillion won.
During the same period, however, GDP increased by only 1.74-fold, from 742.1 trillion won to 1.29 quadrillion won.
“It is worrisome that debt is growing in all sectors while the economy is losing vitality, with dull consumption and investment,” Lim Hee-jung, a researcher at Hyundai Research Institute, said.
“The government should make efforts to recover vitality and growth, as well as to improve the financial healthiness of all economic players,” he said.
Especially household debt has emerged as a serious issue, as households excessively borrowed money from banks to buy houses when the housing market was booming in the mid-2000s but the market has since plunged and has not been recovering. High debt has been cited as one of causes for low domestic demand and economic growth.
Samsung Securities economist Lee Seung-hoon said households used to borrow money to invest in houses before the global financial crisis, but have borrowed for living costs or rent after the crisis as people have less disposable income.
“The chance for household debt to become a threat to the whole financial system is limited. But the nation will have to keep checking risk factors,” Lee said.
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