"This Year's Household Interest Burden 59.4 Trillion Won... Estimated 66 Trillion Won Next Year"

[Asia Economy Reporter Yoo Hyun-seok] Korea Investment & Securities forecasted on the 7th that household interest burden will reach 59 trillion won this year.

On the same day, Korea Investment & Securities made this prediction in a report titled "The Started Interest Rate Hike Cycle, Will the Economy Be Okay?" based on data from the Bank of Korea on household debt.

This represents an increase of approximately 12% and 24% respectively compared to last year (53.2 trillion won). The forecast assumes an additional 25bp (1bp=0.01 percentage point) increase in the base interest rate in the fourth quarter and a 50bp increase next year.

Korea Investment & Securities also assumed that the outstanding household loans will increase by 9% this year and 5% next year, and that loan interest rates will rise by the same magnitude as the base rate hikes. The proportion of variable interest rates affected by the rate hikes was set at an average of 70% this year.

However, Kim Ye-in, a researcher at Korea Investment & Securities, said, "The impact of the absolute increase in interest costs on household consumption capacity depends on income changes," adding, "Although the 'absolute' interest amount will increase due to the combined effect of rising debt and the interest rate hike cycle, the 'real' interest burden is not expected to be heavy enough to constrain consumption as income recovery supports it."

Researcher Kim predicted that household disposable income will improve this year and next year, supported by increases in labor and business income, expecting a 2.2% increase this year and 3.6% next year. Additionally, the ratio of interest costs to household disposable income is expected to be around 6% next year, slightly lower than 6.2% in 2018.

Researcher Kim explained, "This trend can be seen as a normalization of interest burdens that had been alleviated under historically low base interest rates," adding, "Therefore, despite the interest rate hike cycle, there should be no significant strain on the domestic demand-driven recovery."

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