Semiconductor Boom Brings Nominal Growth Rate Within Reach of 10% as "Green Light for Simultaneous Improvement in Household Debt and Government Debt"

\r\n[Financial News] Fueled by a sharp rise in semiconductor export prices, expectations are gaining that this year's nominal Gross Domestic Product (GDP) growth rate could reach double digits for the first time in 24 years. As nominal GDP expands, ratios such as household debt and government debt tend to fall. Analysts say this could also improve key soundness indicators.
In the financial market on the 31st, views were spreading that this year's nominal GDP growth rate is likely to exceed 10% for the first time since 2002, when it stood at 11.0%. The consensus is that the nominal GDP growth rate for the first quarter, to be released on June 9, will far surpass 10% from a year earlier.
At an economic outlook briefing on the 28th, Lee Ji-ho, head of the Research Department of the Bank of Korea (BOK), said, "Nominal GDP growth will likely come in quite high, reflecting the sharp increase in real gross national income in the first quarter and high semiconductor export prices." Real GDP growth for the first quarter, adjusted for inflation, was 3.6% from a year earlier in the preliminary estimate.
Expectations are also being supported by the fact that semiconductor prices have continued to rise in the second quarter without losing momentum, while the BOK raised its forecast for this year's annual real growth rate from 2.0% to 2.6% in its May economic outlook.
The most immediate benefit of nominal GDP expansion would be a decline in the household debt ratio. Based on the government's target of a 1.5% increase in household debt this year, a 10% rise in nominal GDP alone would lower household debt as a share of GDP to 81.8%. That would mark the largest drop on record, at 6.8 percentage points, and the lowest level in 11 years.
If growth reaches 12%, the ratio would fall to 80.3%, and if it rises to 13%, it would drop to 79.6%, breaking below the 80% threshold. That would mean the government could achieve its 2030 target of keeping the ratio at around 80% up to four years early. The household debt ratio, which surged to 98.7% at the end of 2021, had fallen to 88.6% by the end of last year.
South Korea's household debt ratio remains high by international standards. According to the Institute of International Finance (IIF), the country's ratio stood at 87.8% at the end of the first quarter this year, ranking seventh among 37 advanced economies, behind Switzerland, Australia, Canada, the Netherlands, New Zealand and Denmark. South Korea was reclassified this year from an emerging market to an advanced economy. If the ratio falls into the low 80% range, its ranking could also slip to around the top 10.
Expectations are also rising for improved fiscal soundness. Last year, government debt as a share of GDP, based on the central government, stood at 47.6%, up 3.0 percentage points from a year earlier. In the National Fiscal Management Plan submitted to the National Assembly in September last year, the government projected that the debt ratio would rise by 4 percentage points to 51.6% this year.
However, a simple estimate based on a 10% nominal GDP growth rate this year would reduce the increase to just 0.7 percentage points, leaving the ratio at 48.3%.
The semiconductor export boom is also expected to boost tax revenue. In its May economic outlook, the BOK projected this year's Current Account Balance surplus at $250 billion, well above its February forecast of $170 billion and more than double last year's record high of $123.1 billion.
Shin Hyun-song, Governor of the Bank of Korea, said at a press briefing after the Monetary Policy Board meeting on the 28th, "The semiconductor boom will significantly increase tax revenue and benefits for the public as a whole." He added, "Since income tax is also levied on semiconductor bonuses, a spillover effect is expected."
eastcold@fnnews.com Kim Dong-chan Reporter