[Weekly Review] 'SOS to Nuclear Power' Overcoming Power Supply Crisis Amid Heatwave... Fitch Lowers South Korea's Potential Growth Rate

On the 22nd, when a heatwave advisory was issued for Seoul and the metropolitan area, citizens were moving along Wangsimni-ro in Seongdong-gu, Seoul. Photo by Jinhyung Kang aymsdream@

[Sejong=Asia Economy Reporter Kwon Haeyoung] Although concerns about power supply instability arose due to this week's heatwave, the government successfully overcame the first hurdle by managing stable supply. As the supply reserve margin, which indicates the surplus power capacity, dropped to its lowest level in the fourth week of July, the government took all-out measures to prevent a power crisis, including the early deployment of nuclear power plants that were scheduled for maintenance.

According to the Korea Power Exchange on the 24th, the expected peak time is between 6 and 7 p.m., with a maximum power demand forecast of 77GW. The supply reserve margin during this time is expected to be 16.8GW (supply reserve rate of 21.9%), indicating a normal state.

As the heatwave continued this week, raising concerns about a power crisis, the government restarted three nuclear reactors. Following the restart of Shin-Wolsong Unit 1 (1000 MW) on the 18th, Shin-Kori Unit 4 (1400 MW) and Wolseong Unit 3 (700 MW) began operation on the 21st and 23rd, respectively. These restarts were brought forward from the original schedule. Shin-Wolsong Unit 1 was initially planned to restart at the end of August, and Shin-Kori Unit 4 at the end of this month. However, with daytime temperatures expected to reach up to 36 degrees Celsius this week and the heatwave intensifying, the government advanced the restart dates by more than a month in some cases. The restart of these three nuclear reactors added an additional 2150 MW of nuclear power supply this week compared to last week.

◆ Fitch Downgrades South Korea's Potential Growth Rate from 2.5% to 2.3%＝International credit rating agency Fitch has downgraded South Korea's potential growth rate from 2.5% to 2.3%. While maintaining South Korea's sovereign credit rating at 'AA- (Stable)', Fitch cited a decline in the working-age population due to low birth rates and aging as constraints on medium- to long-term growth. It also warned that the increase in national debt poses fiscal management risks.

When announcing South Korea's credit rating on the 22nd, Fitch explained the reason for the potential growth rate downgrade by stating, "The country faces medium-term growth pressures due to rapid population aging." It added, "The current government has announced a Korean New Deal involving large-scale fiscal spending to offset medium-term concerns, but it is too early to evaluate its impact." The Ministry of Economy and Finance distributed a separate statement on the same day, which did not mention the potential growth rate downgrade.

Fitch identified aging and rising national debt as risk factors for the Korean economy. In particular, it analyzed that the increase in national debt due to rising expenditures poses risks to fiscal management. The general government's fiscal deficit (central government, local governments, and non-profit public institutions) is expected to expand from 3.7% of GDP last year to 4.4% this year but will still remain below the AA median of 5.3%.

[Image source=Yonhap News]

◆ 46.8% of Job Seekers Who Gave Up in Their 20s and 30s... Record High＝Among the record-high number of job seekers who gave up last month, 46.8% were in their 20s and 30s. The proportion of job seekers aged 60 and above increased by 8.2 percentage points from the previous year to 28.6%.

According to Statistics Korea, the number of job seekers who gave up in June was 583,000, an increase of 46,000 from a year earlier. This marks the 16th consecutive month since March last year that the record for the same month has been broken. The prolonged COVID-19 pandemic appears to have frozen the job market.

Among the total, 20-somethings numbered 186,000 and 30-somethings 87,000, totaling 273,000 (46.8%) in their 20s and 30s. Compared to a year ago, the number of 20-somethings increased by 100,000, while 30-somethings decreased by 90,000, resulting in a net increase of 10,000. By gender, the number of 30-something male job seekers who gave up decreased by 130,000 from the previous year, while 30-something females and both male and female 20-somethings increased. Those aged 60 and above numbered 167,000, an increase of 57,000 from a year earlier. Their share of total job seekers who gave up also rose from 20.4% to 28.6%, an 8.2 percentage point jump.

◆ Household Debt Growth Rate 2.5 Times Faster Than Income＝The rate of increase in household debt in South Korea is 2.5 times faster than income growth. This means that the loans and interest that indebted households must repay are growing more than twice as fast as their income. With the Bank of Korea strongly signaling an interest rate hike within the year, the burden of principal and interest repayments is expected to increase further.

Analysis of the '2020 Household Finance and Welfare Survey' by Asia Economy Newspaper shows that as of the end of March last year, household debt per household was 82.65 million KRW, increasing by about 3.86 million KRW annually over the previous three years. Household debt per household, which was about 70.99 million KRW at the end of March 2017, rose to 76.68 million KRW in 2018 and 79.10 million KRW in 2019, surpassing 80 million KRW for the first time last year.

On the other hand, average income increased by only about 1.49 million KRW annually over three years. Average household income, which was 54.78 million KRW in 2016, rose to 59.24 million KRW after 2019. The average income growth rate per household in 2019 was 1.7%, the lowest since Statistics Korea began compiling related statistics in 2012.

Meanwhile, the Bank of Korea is preparing for an interest rate hike within the year. This is an unavoidable choice to curb asset concentration based on excessive borrowing. However, as the fourth wave of COVID-19 continues, there are calls for solutions to prevent a sharp increase in delinquencies among self-employed individuals, low-income groups, and multiple debtors.