NABO Industry Trends and Issues (No. 9)
I. Household Incomes, Real Estate Market, Commodities Market Trends
(Household Income Trends) The per-household monthly average (nominal) income in the first quarter of 2018 increased by 3.7% following the current income increase. By income bracket, the incomes of the bottom 20% decreased whereas the incomes of the top 20% increased. Consequently, the ratio between the top 20% and bottom 20% was 5.95, higher than the same period of the previous year (5.35), indicating that income inequality has been aggravated.
(Real Estate Market Trends) Korean housing sales price volatility (MoM) has reversed course against a falling trend, exhibiting a drop of –0.03% in May 2018. While the increase rate is decreasing in Seoul, Gyeonggi, Incheon, Daegu, Gwangju, Sejong and Jeonnam; the housing sales volatility rate in other regions are experiencing a negative trend or falling further downward. Korea’s land prices increased 1.32% from January to April, higher than the land price increase rate of the same period in the previous year (1.05%).
(Financial and Commodities Market Trends) Recently, the international financial market has been witnessing mixed signals in regards to exchanges rates and in the foreign exchange market, while stock prices appeared to make adjustments due to increased risk indicators such as financial instability in emerging markets and political instability in southern Europe. Global credit and risk indicators such as emerging countries’ bond spreads and US corporate bond spreads increased, whereas the Korean CDS premium decreased while commodity and agricultural product prices appeared to increase due to factors such as higher demand and further inflationary pressure.
II. Impact Analysis of US Import Regulatory Measures against Korea (Focusing on Steel, Washing Machines and Solar Cells)
The losses in exports due to the US’ recent import regulatory measures against Korean companies (steel, washing machines and solar cells) has been estimated, followed by an impact analysis in connection with an input-output analysis. The losses related to steel exports total 1.24 billion dollars (1 trillion 333.6 billion won), with production induced losses at 3 trillion 654.6 billion won, value-added induced losses at 651 billion won, and employment induced losses at 6,538 employees. The losses in washing machine exports total 760 million dollars (810.9 billion won), with production induced losses at 2 trillion 133.3 billion won, value-added induced losses at 560.5 billion won, and employment induced losses at 8,146 employees. The amount of losses in solar cells total 470 million dollars (505.6 billion won), with production induced losses at 1 trillion 107.2 billion won, value-added induced losses at 346.3 billion won, and employment induced losses at 1,309 employees.
III. Estimation of Interest Payment Burden from Household Debts following the Rise in Interest Rates
In the first quarter of 2018, Korean household debts totaled 1,468 trillion won, 8% higher than the same period in the previous year. Following the recent increase of US interest rates, there are increasing signs of a market interest rate increase. Therefore, the burden imposed on indebted households in terms of paying back the loan interest is likely to rise. According to analysis conducted through the Micro-data of the Household Financing Welfare Survey (2017), when loan interest rates are increased by 1%p, indebted households will be required to pay 941 thousand won more in annual interest payments. Furthermore, the analysis revealed that the burden of interest payments is relatively higher for households with relatively lower level of income (households with low income, older age) as well as households with higher income volatility (self-employed) compared to others. Therefore, household debt should be managed in consideration of households’ debt payment ability.