[Inside Chodong] 'Crisis Signals' Obscured by Ambiguity

"Following the recovery trend in exports, signs of domestic demand recovery are also emerging." "Household debt is being managed in a stable manner." "The financial market is showing a fairly stable appearance."

These are the government's assessments regarding various concerns surrounding the Korean economy, including exports, domestic demand, household debt, and real estate project financing (PF). Although phrases like 'signs of recovery,' 'stable management,' and 'fairly stable appearance' feel somewhat vague and lack objectivity, the majority of the public has no choice but to accept the government's perspective. The rhetoric of 'technocrats,' who possess knowledge or skills and exert significant influence on social or organizational decision-making, operates in this way.

However, with just a little attention, one can find that the environment surrounding the Korean economy is far from easy, contrary to the government's evaluation. This is evident in trends in household loans, delinquency rates, the situation of self-employed individuals, consumer sentiment, and employment statistics. According to the Bank of Korea, household loan balances increased by 11 trillion won in April and May. The cumulative balance reached 1,109.6 trillion won, marking an all-time high. The International Institute of Finance (IIF) recently reported that the household debt-to-GDP ratio at the end of last year was 93.5%, ranking among the highest of 34 countries. Although the base year was changed from 2015 to 2020, lowering the ratio below 100%, the ranking remained unchanged. Moreover, when including the 'jeonse deposit'?a type of key money deposit not accounted for in major countries' household debt items?the debt ratio is estimated to reach approximately 145%.

It would be fortunate if high debt levels were being repaid well, but delinquency indicators are also precarious. According to the Financial Supervisory Service, new bank delinquencies from the beginning of this year through April reached 10.8 trillion won. This level is comparable to the annual delinquency amounts during the COVID-19 pandemic years of 2021 (11.5 trillion won) and 2022 (12.6 trillion won). Particularly, the situation of 6 million self-employed individuals is concerning. As of April, the delinquency rate for sole proprietors rose by 0.2 percentage points to 0.61%, marking the highest level in 11 years and 4 months since December 2012. The closure rate had already increased by 0.8 percentage points to 9.5% as of the end of last year, and the number of closures rose by 111,000 to 911,000.

Due to the accumulated burden, the situation of vulnerable borrowers seems to be approaching a certain critical point. In fact, the consumer sentiment index in May was 98.4, falling below 100 for the first time this year. The small business owners' business sentiment index (BSI) in June dropped by 7.0 points from the previous month to 67.4, plunging 13.4 points compared to a year ago.

Employment, which can gauge economic vitality, recorded its worst performance in 39 months in May. According to Statistics Korea's employment trends, the number of employed persons aged 15 and over increased by only 80,000 compared to a year earlier. This is the lowest in 3 years and 3 months since February 2021, when the COVID-19 pandemic began in earnest. Most notably, the youth employment rate fell by 0.7 percentage points, pushing the youth unemployment rate up to 6.7%.

Even the messages from the government and research institutions regarding the same indicators differ. Contrary to the government's Green Book announcement that signs of domestic demand recovery are appearing, the Korea Development Institute diagnosed that while exports are increasing, the domestic demand recovery is "not yet" underway. Relying solely on the government's evaluation is risky given the various indicators and surrounding environment. A pivot in the Korean economy cannot be achieved by chance.