[Asia Economy Reporter Jeong Hyunjin] Despite the economic downturn caused by the novel coronavirus disease (COVID-19) pandemic, an unusual phenomenon of decreasing credit card debt is occurring in the United States and Europe, according to a report by the Wall Street Journal (WSJ) on the 2nd (local time). This means that despite rising unemployment rates due to massive government stimulus measures, there has not been an increase in defaults.
On the same day, WSJ reported using data from the credit information company Equifax that credit card debt has decreased in the United States, the United Kingdom, Australia, and other countries, stating, "It was expected that credit card debt and delinquency rates would increase as unemployment rose during the COVID-19 lockdowns, but the opposite phenomenon is occurring."
According to Equifax, U.S. credit card debt, which was $898 billion at the end of February when the COVID-19 spread intensified, decreased by 11% to $797 billion by the end of June. During the same period, credit card debt in Canada decreased by 11%, and in the United Kingdom and Australia, it decreased by 14% and 17%, respectively. In the Eurozone, credit card debt and revolving loans also decreased by 5%.
WSJ explained, citing economists and financial industry officials, that the unexpected reduction in credit card debt during the recession is an effect of stimulus measures by governments of major countries including the United States. Measures such as loan repayment deferrals have stabilized household financial conditions, and in some cases, have even improved them compared to the pre-pandemic period.
Additionally, lockdown measures to prevent the spread of COVID-19 reduced credit card usage itself, and even after lockdowns were eased, government cash payments were made through bank accounts, leading to increased use of debit cards to access these funds. The U.S. government previously provided $1,200 in cash per adult and an additional $600 in unemployment benefits.
WSJ also noted concerns that with the resurgence of COVID-19 and the current 18 million unemployed, credit card debt could surge suddenly if additional stimulus measures such as extensions of unemployment benefits are not implemented.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
