Record household debt saps spending

By William Sim  |   2008-6-10  |     NEWSPAPER EDITION

SOUTH Korea's household debt rose to a record last quarter as consumers borrowed more to buy homes and settle credit-card bills.

Household credit, the sum of loans and credit-card installments, surged 9.2 percent to 640.5 trillion won (US$620 billion) in the first quarter from a year earlier, the Bank of Korea said yesterday.

Rising debt and accelerating inflation are driving up costs and sapping consumers' buying power and corporate profit margins, according to Bloomberg News.

South Korea's government said it will provide 10.5 trillion won in tax rebates and subsidies to help consumers and businesses cope with surging oil costs.

"People won't increase spending when everything is getting more expensive," said Chun Chong Woo, an economist at SC First Bank Korea Ltd in Seoul. "It will take some time before consumer spending picks up." Record oil and a weaker won caused consumer prices to rise 4.9 percent in May, the fastest pace in seven years. The economy grew at the slowest rate in more than a year last quarter.