"COVID-19 Expands Household Debt Burden... Pressure Grows from High Debt Ratios in Emerging Markets Including Han"

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] There is a forecast that the burden of household debt will increase due to the novel coronavirus infection (COVID-19) crisis. It is explained that the economic impact will be caused by the increase in household debt combined with job losses and reduced household income due to COVID-19.

The Institute of International Finance (IIF) recently projected in a report titled "Household Debt Burden Worsening Due to COVID-19" that the large-scale job losses caused by COVID-19 will worsen the household debt-to-income ratio. The report explained that global household debt stands at $47 trillion (approximately 57,000 trillion KRW), an increase of $12 trillion compared to just before the 2007 global financial crisis. This is about 60% of the gross domestic product (GDP).

In particular, among the 75 countries whose data IIF manages, more than three-quarters have a household debt-to-GDP ratio that has worsened compared to the financial crisis period. Among these, countries where this ratio has deteriorated by more than 15 percentage points include Korea, China, Taiwan, Bahrain, Kuwait, Lebanon, Oman, Malaysia, and Tunisia.

The IIF stated, "The likelihood of job loss is increasing, and social distancing measures have reduced working hours, raising concerns about households' ability to repay debts, thereby increasing the debt burden." It added, "Household debt ratios have increased in most emerging and frontier market countries," pointing out that "only 9 out of 53 emerging and frontier market countries have seen a decrease in debt ratios compared to 2007."

The report diagnosed that the household debt burden could deepen socio-economic vulnerabilities and increase the economic shock caused by COVID-19. It also pointed out that it could act as an even greater obstacle to economic growth by causing a sharp decline in consumption, especially among low-income groups.

The report anticipated that this COVID-19 crisis, characterized by unusually high uncertainty, may lead even households with relatively low debt to reduce spending for precautionary savings. In particular, in countries with a high proportion of private consumption in the economy such as the United States, the United Kingdom, Australia, Canada, and Malaysia, the burden of household debt and the resulting contraction in consumption are expected to be significant factors dragging down growth rates.

This content was produced with the assistance of AI translation services.