[Urgent Check] Is the 'R Fear' Hitting the Real Economy?

Triple Confusion Engulfs Economy
Government Claims External Soundness
But August Current Account Deficit Confirmed
1800 Trillion Won Household Debt Also a 'Powder Keg'

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jung] As the stock, exchange rate, and bond markets fall into a ‘triple chaos,’ even exports, which have supported the Korean economy, are faltering, and the ‘fear of R(recession)’ is creeping into the real economy. Although the government maintains that South Korea’s external soundness indicators are favorable compared to the 1997 foreign exchange crisis and the 2008 global financial crisis, the crisis theory is increasingly becoming a reality as the key external soundness indicator, the current account balance, is also expected to turn into a deficit. In particular, there are growing concerns that the massive household debt amounting to 1,800 trillion won will act as a powder keg in the event of an external shock.

According to the Bank of Korea on the 4th, it is almost certain that South Korea’s monthly current account balance will turn into a deficit in the upcoming announcement of the ‘August International Balance of Payments (provisional)’ statistics on the 7th. Except for April, when overseas remittance dividends increase every year, the last time South Korea’s current account balance showed a deficit was in February 2012. The shift to a current account deficit in August is closely related to the trade balance, which has been in deficit for six consecutive months. Although the current account balance recorded a surplus for three consecutive months (1.09 billion dollars) in July, the goods balance linked to the trade balance turned into a deficit for the first time in 10 years and 3 months. If the current account balance solidifies into a deficit starting in August, it can only be interpreted as a warning signal for the Korean economy.

Of course, the government still emphasizes that there are no fundamental problems with the economy compared to past crises, but economic experts point out that there is no room for complacency. One of the indicators that economic experts are most concerned about is the household debt, which has reached a record high of 1,869.4 trillion won since statistics began in 2003. If the domestic economy is shaken by external shocks, it will inevitably deal a fatal blow to vulnerable groups such as ordinary citizens and self-employed individuals. It is also worrisome that the ratio of short-term external debt, which has recently been on the rise, has reached its highest level in 10 years since the second quarter of 2012 (45.6%), while the proportion of long-term external debt remains higher than during the financial crisis.

Kim Jeong-sik, Honorary Professor of the Department of Economics at Yonsei University, expressed concern, saying, "With a projected managed fiscal balance deficit of 11.08 trillion won this year, if the current account balance also turns into a deficit, the ‘twin deficit’ crisis could become a reality." He added, "With the triple hardships of high inflation, high interest rates, and high exchange rates, even exports, which have supported our economy, are faltering, creating a ‘precarious’ situation."

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