Mon, Nov 05, 2012 - Page 14 News List

Economy slows as South Korean debt soars to US$2.75tn

AP, SEOUL

South Korea’s total public and private-sector debt soared to US$2.75 trillion this summer due to greater spending to stimulate growth and growing household borrowing, a report said yesterday.

As of June, combined debt held by the government, companies and households rose to 2,962 trillion won from 1,966 trillion won in 2007 and 2,859 trillion won at the end of last year, Yonhap news agency said.

The ratio of such debt to nominal GDP was 201.7 percent in 2007, 231.1 percent in December last year and 233.8 percent at the end of June it said, citing bank data.

The ratio has been on the rise since the 2008 global financial crisis as the government expanded spending to spur growth, and lower borrowing costs prompted more households to rely on bank lending, Yonhap said.

In June, Moody’s Investors Service said the country’s household loans have grown “at an alarming rate” and are vulnerable to financial shocks arising from the global economic downturn.

Many households rely on borrowing to buy a home and pay only the interest every month, repaying the principal when they sell the property.

However, a weak property market often means they cannot make enough to repay the principal when the loan falls due.

Financial officials had said that household debts pose a downside risk to the economy amid a global economic slowdown and a sluggish domestic property market.

South Korea’s economy grew 0.2 percent in the July-to-September quarter from the previous three months — the slowest pace in nearly three years as the eurozone crisis impacted investment activity.

The central bank slashed its key interest rate by 25 basis points last month for the second time this year to 2.75 percent as it took advantage of the tame inflation rate to try and boost the slowing economy.

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