Seoul, June 5
The South Korean economy is showing increasing similarities to Japan's past stagnation, and bold structural reforms, along with innovation, are needed to prevent prolonged low growth, the central bank said on Thursday.
In its latest research report, the Bank of Korea (BOK) said South Korea "is following in Japan's footsteps in many areas," pointing to mounting private-sector debt as one of the major concerns.
In 2023, Korea's private-sector debt reached 207.4 percent of the gross domestic product (GDP), nearing Japan's peak level of 214.2 percent during its asset bubble period in 1994, reports news agency.
After Japan's bubble burst, asset-linked debt destabilised the banking sector and led to distorted capital allocation, with funds flowing into such low-productivity sectors as real estate and "zombie" firms.
"Debt levels must be tightly controlled through precise macroprudential regulation, stronger coordination with monetary policy, sustained efforts to manage household debt and swift, decisive corporate restructuring," the report stated.
South Korea and Japan also share similar demographic challenges, including low birth rates and rapid population aging, the BOK said.