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Local challenges in global Korea : Rebalancing with leverage

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  • Local challenges in global Korea
  • Karasulu, Meral
  • The Association of Korean Economic Studies


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Title Local challenges in global Korea
Similar Titles
Sub Title

Rebalancing with leverage

Material Type Articles
Author(English)

Karasulu, Meral

Publisher

[Seoul]:The Association of Korean Economic Studies

Date 2010-12
Journal Title; Vol./Issue Korea and the World Economy:vol. 11(no. 3)
Pages 24
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Financial Policy
Holding AKES

Abstract

This paper analyzes the implications of global rebalancing in the post-crisis period for Korea and how high leverage in the household and SME sectors could affect this process. Consumption and investment in Korea appear in line with that of peers, but there are limits how much they could be sustained in the post crisis world to pick up the slack from a lower external demand. To avoid the build-up of vulnerabilities from high leverage, households have to increase their saving rate limiting consumption growth. On the other hand, exportoriented and large corporates may need to invest less with lower export demand increasing corporate savings further. This would leave SMEs in the non-tradable sector as the engines for investment, employment and household income growth, increasing the urgency to address their long-standing structural problems and weak balance sheets. Delaying the necessary adjustment would increase costs and financial vulnerabilities. (The rest omitted)