NABO Economic Trends & Issues (Issue No. 74)
Published on 14 December 2018
Published by Macro-Economic Analysis Division of the Economic Analysis Bureau
I. Economic Trends
The Korean economy has recently been experiencing weakened economic growth due to the continued low capacity utilization rate of the manufacturing sector and contraction of consumer confidence, even though production and consumption has experienced a rebound. The won-to-dollar exchange rate dropped from the previous month as the US FRB is likely to adjust the pace at which it raises the US policy interest rate, and the treasury bond (3-year-maturity) yield decreased from the previous month due to concerns about an economic slowdown.
Ⅱ. Analysis of the Economic Indicating Power of Interest Rate Spreads
In the case of government bond interest rates which reflect domestic and external economic conditions, the long-term and short-term spreads (the gap between interest rates) exhibit compressions and reversals during periods of economic contraction. Upon analyzing the correlation between such long-term and short term interest rate spreads and economic cycle movement, it was found that the spread between the 5-year-maturity treasury bond and call interest rate (91 days) spread is helpful for predicting the direction of the economy after the 3rd quarter; whereas the spread between the 5-year maturity treasury bond and 3-year maturity treasury bond is useful for understanding economic conditions after the fourth quarter. Therefore, the long-term and short-term interest rate spreads which help to predict the future direction of the economy are likely to be utilized as a useful variable in making economic projections and implementing monetary policies.
Ⅲ. Analysis of the Micro-determinants of Household Debts
In the third quarter of 2018, Korean household debts totaled 1,514 trillion won, having increased by 6.7% YoY, which is a higher rate than the nominal GDP growth rate (5.4%) and household disposable income increase rate (4.5%), leaving the risk of a negative impact on consumption and economic growth. Therefore, an analysis on the micro-determinants of household debts was conducted based on the Survey of Household Finances and Living Conditions, which showed that when property asset volumes increase by 1%, household financial debt increases by 0.66%. Also, since the determinants vary depending on each household’s income, the analysis implies that such differences should be taken into consideration when developing soft-landing policies for household debts.