By Kim Jae-kyoung
Staff Reporter
The nation’s household savings rate is expected to dip to the lowest among rich countries next year, according to the Organization for Economic Cooperation and Development (OECD).
In its latest economic outlook report, the Paris-based organization forecast that South Korea will post a 3.2-percent net household savings rate in 2010, the lowest along with Japan among 18 OECD member countries, and well below the average of 8.5 percent.
This year, the nation’s savings rate is expected to stand at 5.1 percent, the fourth lowest just ahead of Denmark (5 percent), Norway (4.6 percent) and Japan (3.3 percent). The average rate is expected to reach 8.7 percent.
Sweden is forecasted to post the highest savings rate of 15.6 percent this year, followed by Spain (14.1 percent), Austria (13.7 percent), France (13.2 percent) and Germany (12.5 percent).
Over the past few years, the nation’s savings rate has continued to decline as consumption grew at a much faster pace than income amid low interest rates.
After peaking at 24.9 percent in 1998 when the financial crisis shook the country, the savings rate posted double-digits until 2001 when it fell to 6.4 percent. It has since been on a downward trend.
``Households’ capability to save has weakened significantly over the past years, as they borrowed heavily to spend on private education and real estate investment, which is manifested in the rising household debt rate,’’ Korea Institute of Finance Vice President Park Jae-ha said.
``In addition, households’ real income has been falling in the wake of the global financial crisis,’’ he added.
Korea Development Institute economist Cho Dong-chul echoed the view, saying, ``Even those without regular income got easier access to loans, which has reduced households’ ability to save.’’
According to the Bank of Korea (BOK), Koreans’ ability to repay debt fell to a record low last year, with individuals’ asset-to-debt ratio, an indicator measuring their capacity to repay debts, falling to 2.09 at the end of last year from 2.31 a year ago.
Individual debt totaled 802 trillion won at the end of last year, up 7.9 percent from a year ago. Personal debt stood at 743 trillion won in 2007, 670.1 trillion won in 2006 and 601.4 trillion won in 2005.
``The fall in the household savings rate is expected to pull down the nation’s gross savings ratio, which will then deteriorate corporate investment and the current account balance,’’ Hyundai Economic Research Institute economist Park Deog-bae said.
``In addition, the decline is feared to prolong local households’ indebtedness problems, generating more credit defaulters,’’ he added.
``Since the low savings rate means robust consumption, it is not necessarily a bad thing,’’ said a BOK economist.
``However, since the low savings rate is the result of falling income and snowballing debts, the government needs to come up with measures to stabilize low-income earners by guaranteeing job security and providing more jobs,’’ he added.