Will Soaring Semiconductor Prices Support a Gradual Stabilization of the Household Debt Ratio? Why [BOK Focus]

Gradual Reduction Target for Household Debt Ratio to 80%

Nominal GDP Expected to Rise Sharply Amid Tighter Household Debt Controls

Major Semiconductor Export Price Index Triples in One Year

First Quarter Nominal GDP Projected to See D

'80%'. This is the target ratio of household debt to nominal Gross Domestic Product (GDP) that the government aims to achieve by 2030. In order to lower the current household debt ratio, which is in the high 80% range, to 80% within the next five years, a 'gradual and stable reduction' is essential. Analysts believe that this year's sharp increase in semiconductor prices will contribute to this goal. Why is that?

Goal of Gradual Reduction in Household Debt Ratio to 80%: The Reason

When debt increases and interest burdens grow, households tend to tighten their spending. This contraction in domestic consumption can hinder economic growth. However, as the economy expands, debt naturally rises as well, so trying to reduce the scale of debt too aggressively could negatively impact the real economy. This is why the government aims to allow household debt to increase, but at a slower pace than the growth rate of the Korean economy. The intention is to gradually decrease the proportion of debt.

The goal is to lower the household debt-to-nominal GDP ratio to around 80% by 2030. To this end, the Financial Services Commission has set this year’s target for the growth rate of total household loans under management at 1.5%, down 0.2 percentage points from last year’s 1.7%. The plan is to induce funds, which have been excessively concentrated in the real estate market, to flow into more productive sectors such as businesses through tight debt management.

At the end of last year, the household debt-to-nominal GDP ratio stood at 88.6%. For the first time since the COVID-19 pandemic, it fell below the pre-pandemic level (89.6% at the end of 2019). Korea’s household debt ratio surged to 97.1% at the end of 2020, when the pandemic intensified, and further climbed to 98.7% at the end of 2021. It then gradually declined to 97.3% at the end of 2022, 93.0% at the end of 2023, and 89.6% at the end of 2024. The drop in the debt ratio to pre-pandemic levels last year is attributed to the continued implementation of strict lending regulations, such as the June 27 Measures, October 15 Measures, and the three-phase implementation of the Stress-based Debt Service Ratio (DSR) regulation.

A citizen is looking at a mortgage loan advertisement posted in front of a financial institution in Seoul. Photo by Yonhap News.

The Key Factor in Government Management of Household Debt: Nominal GDP Growth Rate

This year as well, it is assessed that the government’s continued tightening stance makes a significant increase in household debt unlikely. The key factor is the nominal GDP growth rate, which serves as the denominator in the calculation of the debt ratio. Nominal GDP is calculated by applying the prices of the period in which the final goods are produced to the value of those goods, so it reflects not only the quantity of final products but also all price changes.

It is widely expected that nominal GDP for the first quarter of this year far exceeded the recently announced real GDP growth rate of 1.7%. Market observers note that the surge in semiconductor exports and positive performance surprises were driven not just by increased volume, but also by sharp price hikes. As a result, they anticipate that the nominal GDP growth rate for the first quarter will reach double digits.

According to the Bank of Korea Economic Statistics System (ECOS), the export price index for DRAM and flash memory soared from 88.46 and 81.04 (in KRW terms, 2020=100) in April last year to 294.36 and 218.26, respectively, in April this year. This represents an increase of up to 233% in just over a year. The nominal GDP for the first quarter of this year will be announced on June 9.

Annual nominal GDP growth is also expected to far exceed last year’s level, largely thanks to the 'semiconductor effect,' despite ongoing external uncertainties such as Middle East conflicts. Last year, nominal GDP was 2,663.3 trillion won, up 4.2% from the previous year. As nominal GDP grows in this way, the household debt ratio will naturally decline.

However, trends in housing-related loan increases remain a variable. Lee Hyeyoung, head of the Financial Statistics Team in the Economic Statistics Department 1 at the Bank of Korea, explained, "Home purchases, which precede household loans, increased this month due to properties being listed ahead of the expiration of the temporary suspension of heavier capital gains taxes for owners of multiple homes. Since housing-related loans may expand again, it will be necessary to closely monitor the household loan situation for the time being."

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