World Economy

South Korea Household Savings Double

South Korea Household Savings DoubleSouth Korea Household Savings Double

South Korea’s economy saw its household saving rate increase among the fastest in the Organization for Economic Cooperation and Development, according to the OECD.

The OECD forecast that South Korea’s household saving rate is expected to increase more than twofold this year, compared to four years ago, from 3.9% in 2012 to 8.66% in 2016.

This would rank South Korea as the fifth highest in the OECD following Switzerland with 20.13%, Sweden with 16.45%, Luxembourg with 17.48% and Germany with 10.38%, Yonhap reported.

It also expects the country to maintain its household saving rate at 8.66% next year.

South Korea’s rising household savings as the share of net disposable income come not because of increased wages, but mainly due to demographic changes as its population with purchasing power decreases amid an aging society.

“The household sector’s balance shifted from a deficit in 2011 to a surplus in 2012-2014, in part due to transitory demographic factors,” the OECD said in a report.

“Indeed, the household saving rate rose from less than 4% to 7.2% over that period, consistent with weak private consumption.”

Also, a growing number of people are saving their income as much as possible rather than spending them mainly for two reasons—weak economic outlook and high household debt.

South Korea’s household debt stood at 163% of household disposable income in 2014, well above the OECD average of 137%. The household debt in the 60 age group amounted to 73% of their financial assets, compared to 20% in the US, according to the OECD.

  Vicious Cycle

These negative factors could further put South Korea’s economy into a vicious cycle of falling private consumption, demand, investment and wages, contrary to the general theory that high savings lead to an increase in corporate investment and income.

“The upward trend in household debt could further constrain private consumption,” the OECD said.

“The high elderly poverty rate reflects both the decline in family support and the weakness of other private and public sources of old-age income support,” it added.

Meanwhile, South Korean authorities are seeking tighter measures to curb the country’s mounting household debt that is forecast to surpass 1,300 trillion won ($1,173 billion) this year.

The country’s household debt stood at 1,223 trillion won at the end of March, up 11.4% from a year ago. If it continues to grow at a double-digit rate, the end-year figure would top 1,300 trillion won, the government and the central bank jointly announced after a meeting on Friday.