[2022 Economic Outlook Survey] "Growth Momentum Will Not Break Next Year... The Biggest Risk Is Household Debt"

Increased Uncertainty Over Omicron Spread
Global Supply Crisis as a Variable
External Risks Include US-China Conflict

[Asia Economy Reporter Jang Sehee] Economic experts predict that our economy will show a slow recovery next year amid the aftermath of COVID-19. The biggest risk for next year was identified as ‘household debt.’

According to a survey conducted on the 1st by Asia Economy targeting 35 domestic economic experts including presidents of economic-related academic societies, heads of government research institutes, leaders of economic organizations, and CEOs of financial institutions on the ‘2022 Economic Outlook,’ 74.3% of respondents answered that the outlook for our economy next year would show a ‘Nike-shaped recovery (gradual recovery).’

The Nike-shaped recovery refers to a curve that shows a gradual upward trend after a sharp economic downturn. While many forecasts expect this year’s economic growth rate to be around 4%, next year is seen as closer to a slow recovery rather than a rebound. Meanwhile, opinions that the economy will show a ‘strong rebound,’ ‘recovery followed by contraction,’ or ‘long-term stagnation’ each accounted for 5.7%.

The background for the slow recovery response was the expectation that exports are performing well and corporate earnings are rebounding, so the growth trend will not be significantly disrupted. Previously, the Ministry of Economy and Finance, Bank of Korea, and Korea Development Institute (KDI) forecasted that our economy would grow by 3.0% next year.

However, uncertainty about the end of COVID-19 remains a reason for the lack of confidence in the recovery. Concerns have also been raised that economic uncertainty has increased due to the recent spread of the Omicron variant of COVID-19. Since specific information about the variant’s fatality rate and transmissibility is not yet available, the impact is difficult to predict. Some countries have locked down their borders, which could add downward pressure on the economy through disruptions in the global supply chain.

The biggest risk to the Korean economy was identified as household debt. 68.4% of respondents (multiple answers allowed) selected ‘increase in household debt’ as the biggest domestic risk. In particular, 37.1% of first-priority respondents answered that household debt is at a concerning level, and 31.3% of experts who chose it as the second priority also considered the risk significant.

This is interpreted as reflecting concerns that household debt, which increased to an unmanageable level during the COVID-19 response process, could hamper economic growth next year. According to the Bank of Korea, household credit outstanding in the third quarter was 1,844.9 trillion won, an increase of 36.7 trillion won compared to the previous quarter (1,808.2 trillion won). The year-on-year growth rate reached 9.7%. Despite strong loan regulations, the increase in mortgage loans is expanding.

Following household debt, 33.8% cited the expansion of uncertainty due to the prolonged COVID-19 pandemic as a domestic risk, and more than 30% of respondents selected fiscal soundness deterioration (30.2%). Many experts also pointed to interest rate hikes (29.6%) and policy and administrative instability in the early stages of the new government (26.0%) as risks. Some respondents expressed concerns about a policy response gap around the March election next year.

As for external risks, the US-China conflict was the most cited at 61.3%. 45.7% selected it as the first priority, and 15.6% as the second priority. Other risks included US tapering (asset purchase reduction, 41.7%), supply chain instability (33.8%), and rising oil and raw material prices (29.4%). In particular, if the US-China conflict prolongs, it is expected to lead to a global economic downturn, directly affecting our economy.

Related industries also expressed concerns that the recovery in the performance of domestic key manufacturing sectors would slow down. According to a ‘2021 Performance and 2022 Outlook Survey’ conducted by the Federation of Korean Industries targeting 10 export-leading industry associations including semiconductors and automobiles, it was forecasted that manufacturing performance would deteriorate due to uncertainties such as the US-China conflict and raw material supply instability.

Editor's Note◆Participants in the survey (in alphabetical order)

Kang Moonseong, Professor, Department of International Studies, Korea University; Kang Sungjin, Professor, Department of Economics, Korea University; Kwon Kwangseok, CEO, Woori Bank; Kwon Junhak, CEO, NH Nonghyup Bank; Kwon Taeshin, Vice Chairman, Federation of Korean Industries; Kim Gimum, Chairman, Korea Federation of Small and Medium Business; Kim Sangcheol, CEO, Seoul Welfare Foundation and Professor, Department of Social Welfare, Hansei University; Kim Jungtae, Chairman, Hana Financial Group; Kim Jongsook, President, Korean Association of Women Economists; Kim Jinil, Professor, Department of Economics, Korea University; Kim Heungjong, President, Korea Institute for International Economic Policy (KIEP); Park Seongho, CEO, Hana Bank; Park Cheonil, Director, International Trade and Commerce Research Institute, Korea International Trade Association; Sung Myungjae, President, Korean Association of Public Finance and Professor, Department of Economics, Hongik University; Son Byunghwan, CEO, NH Nonghyup Financial Group; Son Taeseung, Chairman, Woori Financial Group; Song Euiyoung, Professor, Department of Economics, Sogang University; Shin Gwanho, Professor, Department of Economics, Korea University; Yoo Jongil, Dean, Graduate School of International Policy, KDI; Yoon Jongkyu, Chairman, KB Financial Group; Lee Geun, Vice Chairman, National Economic Advisory Council; Lee Donggeun, Vice Chairman, Korea Employers Federation; Lee Insil, Professor, Graduate School of Economics, Sogang University; Lee Inho, Professor, Department of Economics, Seoul National University; Lee Jonghwa, Professor, Department of Economics, Korea University; Lim Jin, Director, SGI, Korea Chamber of Commerce and Industry; Jang Sejin, Director, Seoul Institute for Social Economy; Jeon Gwangwoo, Chairman, World Economy Research Institute; Jung Seeun, Professor, Department of Economics, Chungnam National University; Cho Yongbyung, Chairman, Shinhan Financial Group; Joo Hyun, President, Korea Institute for Industrial Economics and Trade; Jin Okdong, CEO, Shinhan Bank; Heo Yongseok, President, Hyundai Research Institute; Heo In, CEO, KB Kookmin Bank; Hong Jangpyo, President, Korea Development Institute (KDI)

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