Warning from 8 Economic and Financial Experts: "This Year Marks the End of the Liquidity Party"

Need for Preparedness Against Adjustments in Asset and Real Estate Markets
Urgent Financial Stability Required for Household and Self-Employed Debt

On the morning of the 13th, Go Seung-beom, Chairman of the Financial Services Commission, held a meeting with economic and financial market experts at the Korea Federation of Banks in Jung-gu, Seoul, to closely examine various risk factors in the domestic and international economic and financial markets in 2022 and discuss response strategies.

[Asia Economy Reporter Kim Jin-ho] Eight domestic economic and financial experts identified the full-scale global monetary tightening and China's economic slowdown as the biggest risks to the Korean economy this year. They also unanimously pointed out that financial stability regarding household and self-employed debt is urgently needed to prepare for adjustments in the asset and real estate markets.

On the 13th, eight market experts attending the Financial Services Commission Chairman?Economic and Financial Experts Meeting held at the Bankers' Hall in Myeongdong, Seoul, reviewed various risk factors in the domestic and international economic and financial markets for this year and made these remarks.

The meeting was attended by Chairman Ko, Choi Jae-young, Director of the International Finance Center, Han Sang-chun, Editorial Writer of Korea Economic Daily, Professor Ahn Yoo-hwa of Sungkyunkwan University, Columnist Lee Cheol-ho of JoongAng Ilbo, Professor Kim Young-ik of Sogang University, Shin Yong-sang, Head of the List Center at the Korea Institute of Finance, Seo Young-soo, Director of Kiwoom Securities, and Noh Hyung-bok, Head of the Research Center at the Korea Development Bank.

Director Choi Jae-young first diagnosed, "We must prepare for the possibility that tightening shocks in emerging markets caused by U.S. monetary tightening could act as a new trigger for the global economy." He pointed out that "there is a risk of spillover from policy normalization, especially in sectors with high leverage ratios and rapidly increased liquidity," and warned to be cautious of ultra-large growth stocks, low-credit bonds, and illiquid assets such as real estate.

He added, "The acceleration of monetary tightening centered on the U.S. and the slowdown of the Chinese economy are also risk factors that require sufficient preparation."

Professor Kim Young-ik expressed concerns about a vicious cycle of global asset price crashes and economic recession. He said, "Despite the U.S. Federal Reserve's indication of interest rate hikes, U.S. Treasury yields remain lower than appropriate levels, causing real interest rates to fall to an all-time low," which is a signal that economic agents expect an economic downturn.

He advised, "In the U.S., where stock investment proportions are high, there is a possibility of a vicious cycle of economic recession caused by a sharp drop in asset prices, and since real interest rates in Korea have been negative since April last year, we must prepare for risks."

Columnist Lee Cheol-ho evaluated this year as "the first year post-COVID and the end of the liquidity party." He said, "We must sufficiently prepare in advance for household debt defaults and real estate bubble collapse, which are concerns during interest rate hikes, to induce a soft landing," warning that "failure to achieve a soft landing could lead to a long-term recession like Japan."

Director Seo Young-soo emphasized the need for financial institutions to set aside reserves in preparation for real estate price adjustments. He stated, "When real estate prices fall, collateral values decline, raising concerns about credit crunches such as a sharp decrease in new loans and reduction in maturity extensions," and suggested, "Management of financial companies' reserve accumulation is necessary to prevent the spread of financial distress."

Additionally, Center Head Shin Yong-sang stressed the urgency of risk management for self-employed loans and the non-bank sector. Professor Ahn Yoo-hwa diagnosed that delayed recovery of global supply chains could cause stagflation in China, which relies heavily on trade, due to inflationary pressures. Center Head Noh Hyung-bok called for risk management in response to the global supply chain crisis.

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