"Domestic Asset Prices May Adjust Due to US Tapering"

Research by Yejungcheo 'Assessment of US Tapering Conditions and Implications'
"Domestic economic conditions are favorable, but high debt levels may amplify the impact"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] There is an analysis that the rapidly increased stock and real estate prices in a short period after COVID-19 are likely to be adjusted due to the tapering of the U.S. Federal Reserve (Fed). Furthermore, if financial authorities raise the base interest rate to reduce capital outflows caused by the Fed's tapering, it is expected to increase the interest burden on households and companies.

On the 30th, the National Assembly Budget Office (NABO) analyzed in the NABO Economic & Industrial Trends & Issues report titled "Review of the U.S. Tapering Conditions and Implications" that the impact of the Fed's tapering could increase due to the rapid debt growth rate of domestic economic agents and the recent high rise in asset prices.

In fact, as of 2020, household debt and corporate debt accounted for 84.3% and 50.5% of the Gross Domestic Product (GDP), respectively, with the private debt growth rate recording 9.3% compared to the previous year. The ratio of household debt to net disposable income in Korea was 190.6% as of 2019, ranking sixth among OECD countries, and the increase rate compared to 2008 was 37.6%, the second highest after Slovakia (60.8%).

The KOSPI increased by 61%, from 1987 in February 2020 to 3199 in August 2021, and the housing price index rose by 10.3%, from 123.4 in the first quarter of 2020 to 146.1 in the first quarter of 2021.

However, the current account balance continues to show a surplus, and the ratio of short-term external debt to foreign exchange reserves is about 40% as of this year, indicating a favorable condition.

In particular, it was emphasized that the degree of the Fed's tapering in the future will vary depending on the pattern of inflation in the U.S. The NABO stated, "Chairman Bernanke's remarks on tapering in May 2013 had a short-term impact on the domestic financial market, but the impact on the financial market after tapering began was limited," adding, "If the U.S. inflation rate remains high, the tapering speed may accelerate, but due to the increased scale of quantitative easing in a short period, the impact could be greater than in 2013-2014."

Meanwhile, NABO added that the impact of the Fed's tapering on the domestic economy may vary depending on other conditions, so continuous monitoring by financial authorities is necessary.

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