Korea Shows Highest Increase in Household Debt to GDP Ratio Among 26 Countries... Warning Signs for Private Debt

IMF: South Korea Household Debt 92% to 108% Over 5 Years
Corporate Debt 147% to 173%, 2nd Largest Increase

Household debt in South Korea has surged to a level exceeding the country's Gross Domestic Product (GDP), showing the highest growth rate among 26 comparable countries. Corporate debt is also continuously increasing, and the central government is not free from debt, making risk management the top priority.

According to the 'Global Debt Database' recently updated by the International Monetary Fund (IMF) on the 3rd, South Korea's household debt-to-GDP ratio reached 108.1% last year, up 16.2 percentage points from 92.0% in 2017, five years earlier.

South Korea was the only one among the 26 countries with private debt (household and corporate) data to record a double-digit increase.

Following South Korea were Slovakia (9.1 percentage points), Japan (7.7 percentage points), Jordan (6.0 percentage points), Luxembourg (3.9 percentage points), Chile (2.8 percentage points), Switzerland (2.5 percentage points), and Germany (2.3 percentage points).

On the other hand, the household debt ratio decreased in the United States (79.5% to 77.0%), as well as in Canada, the Netherlands, the United Kingdom, Austria, Denmark, Norway, Portugal, Greece, Ireland, and Poland.

As South Korea's household debt ratio rapidly increased, its absolute level also surged to second place after Switzerland (130.6%). In 2017, it ranked 7th among the 26 countries.

The problem is that corporate debt is also increasing rapidly. South Korea's non-financial corporate debt-to-GDP ratio rose from 147.0% in 2017 to 173.6% last year, an increase of 26.6 percentage points, the second-largest increase after Luxembourg (38.0 percentage points).

With the rapid surge in both household and corporate debt, the private debt (household + corporate) ratio to GDP also rose quickly. South Korea's private debt ratio increased by 42.8 percentage points from 238.9% in 2017 to 281.7% last year, the largest increase among the 26 comparable countries.

Before the COVID-19 pandemic in 2017, South Korea ranked 11th overall in private debt-to-GDP ratio, but with a steep upward trend, it climbed the rankings each year and reached 2nd place overall last year.

The central government is also not free from debt. Last year, South Korea's government debt stood at 54.3% of GDP, up 14.2 percentage points from 40.1% in 2017. The increase in government debt ranked 16th among 87 comparable countries.

In absolute terms, the ratio is about half of GDP, which is lower compared to the major seven countries (G7) such as Japan (261.3%), Italy (144.4%), the United States (121.4%), France (111.7%), Canada (106.6%), the United Kingdom (101.4%), and Germany (66.5%). However, it is difficult to simply compare with reserve currency countries holding the dollar, yen, euro, and pound, and caution is advised due to the high proportion of South Korea's government debt being external debt.