An analysis has emerged suggesting that Korea's economy resembles Japan's bubble economy collapse in the early 1990s. Concerns have also been raised that if Korea cannot address issues such as household debt growth and aging population, it may follow Japan's 'lost 30 years.'
The Bank of Korea (BOK) revealed this through a report titled 'BOK Issue Note: Lessons to Learn from the Japanese Economy' on the 5th. BOK Director of the Price Trends Team, Jang Tae-yun, and Kim Nam-joo, Head of the Structure Analysis Team, participated in drafting the report.
According to the BOK, Korea's economy faces domestic issues such as aging population and concentration of real estate funds, and international challenges like intensified technological supremacy competition among countries and deteriorating trade conditions. This is leading to a weakening of growth potential.
The BOK diagnosed that Korea's economic situation is similar to Japan's after World War II when it faced issues like household debt growth and aging population. As real estate household debt increases, the private leverage ratio approaches Japan's bubble period high of 214.2% in 1994, and the aging population is advancing faster than in Japan.
The slowdown in export growth due to changes in the trade environment is also similar. Since 2000, Korea has actively participated in the global horizontal division of labor system, growing primarily through exports to China and the information technology (IT) sector. However, with the global trade order fundamentally shaking, the Chinese boom is also disappearing.
The BOK advised that step-by-step risk management is needed in response to the accumulation of household debt, and if the debt becomes insolvent, swift restructuring is necessary. Since experiencing the global financial crisis, Korea has continued to see the concentration of real estate funds without significant structural reform.
It was also diagnosed that preparing measures for low fertility and aging population is urgent. It was advised to expand labor participation by utilizing idle workforce such as career-interrupted women, skilled retirees, and young people in temporary jobs, and to enhance innovation-oriented educational investment. Additionally, it was suggested to systematically utilize foreign labor and gradually increase the birthrate.
Technological structural reform is also a crucial task. Korea and Japan have succeeded with an export growth model centered on manufacturing. However, as the global trade order changes and China's self-sufficiency rate increases, there is a need to change the successful strategy. The BOK diagnosed that fostering advanced industries such as artificial intelligence (AI) and promoting the export of high-value-added services like IT, medical, and cultural contents should be taken as new growth drivers.
The BOK pointed out that if this issue is not resolved, fiscal and monetary policies will also struggle to be effective. Rigid fiscal expenditure increases due to aging population can rapidly exhaust the government's fiscal capacity. If the government does not respond preemptively, fiscal responsiveness to economic cycles could decline and eventually affect national credit ratings in the long term.
Director of the Price Trends Team Jang Tae-yun said, 'Korea must not neglect efforts to secure fiscal sustainability,' noting, 'Whether traditional or non-traditional, monetary policy is a tool for responding to economic cycles, not for improving the economic structure.'
He continued, 'If our society does not take a more forward-looking approach to structural reform, the decline in potential growth rate will continue, fiscal sustainability will be threatened, and the operation of monetary policy could also be more restricted.'