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Forex Flash: South Korea: A healthy household restructuring - Nomura

Nomura economist Young Sun Kwon notes that in 2012, households increased net savings and slowed debt growth to match income growth. He expects policies by the new government to support this restructuring.

He begins by noting that income growth of Korean households rose to 6.1% in 2012, but growth of expenditures slowed to 3.3%. Also, household debt growth slowed to 5.8%, slightly less than income growth. He views this as a healthy restructuring of the household balance sheet. Further, he adds that the net savings ratio of Korean households, which was Asia‟s lowest at 2.7% in 2011, likely rose slightly in 2012, while Korea‟s household debt to disposable income ratio (156% in 2011) may have fallen slightly.

He writes, “A soft landing of the household debt problem is part of the 140-point policy agenda of the new government. That said, we believe the Bank of Korea is wary of accelerating the recovery via further rate cuts, as this could trigger another household debt increase and lower the savings ratio.” he finishes by commenting that as growth bottomed from its low base in Q3 2012, we maintain our out-of-consensus call that the Bank of Korea will keep rates at 2.75% throughout 2013.

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