Era of 2,000 Trillion Won Household Debt: Interest Burden to Surge by 20 Trillion Won per 1%p Interest Rate Hike

As the South Korean economy enters an era of 2,000 trillion won in household debt, warnings have emerged that the increasing interest burden due to interest rate hikes and deepening polarization caused by changes in industrial structure could hold back future economic growth.

Economics Master Gwak Su-jong diagnosed the current state of the South Korean economy through a recently released video, analyzing structural crisis factors hidden behind the short-term growth trend led by the semiconductor industry. Gwak predicted, "The semiconductor business seems to be somewhat okay until next year, so the overall economic growth rate may record a level of 1.5–2.0%, but it is difficult to guarantee anything after 2028."

Interest Burden Increases by 20 Trillion Won per 1%p Interest Rate Hike... Concerns Over Shrinking Domestic Demand

The most direct risk factor identified by Gwak is household debt. Currently, the scale of household debt in South Korea reaches 2,000 trillion won, and the structure is such that if interest rates rise by 1 percentage point, the interest costs that households must bear increase by 20 trillion won every year. The analysis suggests that if an interest burden of this magnitude occurs, household consumption capacity will inevitably shrink sharply.

This contraction in consumption will deal a direct blow to self-employed individuals and small business owners. Gwak pointed out, "If interest rates rise, people cannot consume, and it is difficult for the self-employed to survive," adding, "Middle-market companies also face the risk of becoming 'zombie companies'." In particular, he added that mortgage loans for the self-employed are currently not included in household debt statistics, so the actual felt debt pressure and risk may be greater than the figures suggest.

The issue of bad real estate loans was also mentioned as a potential time bomb. Gwak pointed out that real estate advertisements circulating online may fail to reflect the actual market situation, and emphasized that one must coldly face the reality that the scale of bad loans is continuously increasing.

Income Polarization and Social Structural Changes Due to AI Industry Transition

Fundamental changes in the industrial structure were also cited as a variable for the South Korean economy. As the industrial structure is reorganized with the introduction of AI (Artificial Intelligence) technology, the economic structure and income distribution structure will undergo a chain reaction of changes. Gwak defined this in one word as the "polarization problem," stating, "When AI comes in, the industrial structure changes, which leads to changes in the economic structure and income distribution structure."

The polarization occurring in this process is highly likely to spread across society, including generations, genders, education levels, and regions. In particular, the current situation where middle-market companies and subcontractors suffer from cost-cutting pressure within an industrial structure centered on large corporations becomes a factor that weakens social support capabilities. Citing the case of the United States, Gwak analyzed, "The United States has a system through its educational structure that socially recognizes differential compensation based on performance, but South Korea's structural transition in this regard is insufficient."

Limits of the Semiconductor Engine and Uncertainty After 2028

The key variables that will determine the future direction of the South Korean economy are the sustainability of semiconductor exports and the liquidity supply issue in the AI industry. Semiconductors, which currently account for about 25% of South Korean exports, serve as the engine for economic growth and drive growth at the level of the potential growth rate, but it is unknown how long this momentum will be maintained.

Gwak specifically warned that the development speed of the AI industry might be slowed down due to liquidity shortage issues. He said, "The background of the slowing speed of the AI industry is the liquidity problem, and no one can give an answer as to how to supply it." He explained that in a situation where the U.S. Fed or the U.S. Department of the Treasury cannot supply funds indefinitely, the key will be how market movements, such as the issuance of corporate bonds by companies, unfold.

In conclusion, Gwak warned that while several variables such as oil prices and international affairs remain until 2027, from 2028 onwards, the uncertainty of the global economy, including the United States, China, and Japan, could act as a full-scale risk to the South Korean economy. He concluded the video by emphasizing that rather than delivering a hopeful message to the public, it is more important to recognize these possibilities of crisis and focus on risk management.

Source: original video (YouTube)