SEOUL, Jun. 27 (Korea Bizwire) — High household debt and a possible capital flight following expected U.S. rate hikes pose major risks to South Korea this year, a local think tank said Monday.
In a seminar held by the Korea Economic Research Institute (KERI) in Seoul, KERI Vice President Song Won-geun said faced with downside risk factors such as a record high household debt and a possible capital outflow sparked by further U.S. rate hikes, companies are having difficulty in setting their business plans for the second half.
South Korea’s economy grew 1.1 percent in the first quarter, and the International Monetary Fund and other economic institutes have recently revised up a growth outlook for Asia’s fourth-biggest economy, citing improving exports, Song said.
In 2017, exports are forecast to rise 9.4 percent year-over-year to US$542 billion, while imports are likely to jump 14 percent to $463 billion during the same period, according to the Korea International Trade Association (KITA).
Still, South Korean companies are still struggling with falling sales. Their sales in 2016 generally fell short of matching the sales levels they posted in 2012. Moreover, their operating profit margins still lag behind those by Japanese and Chinese companies, he said, without elaborating.
His view was echoed by Kang In-soo, chief executive of the Hyundai Research Institute (HRI), who attended the seminar.
A gradual recovery in the U.S. economy is a positive factor for the country, but its rapidly aging population and protectionist measures being taken in major trading partners remain major hurdles for its growth, Kang said.
Household debt increased 1.3 percent to 1,359.7 trillion won ($1.196 trillion) as of the end of March from 1,342.5 trillion won three months earlier, according to the Bank of Korea.