HRI ties low saving rate to economic malaise

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HRI ties low saving rate to economic malaise

New research indicates that a declining rate of household savings is holding back economic growth.

According to Hyundai Research Institute (HRI), Korea’s household savings rate in 2011 was 2.7 percent, more than half the average of 5.3 percent for Organization for Economic Cooperation and Development (OECD) countries. The savings rate was 10.4 percent for Germany and 4.2 percent for the United States .

The report said increasing the savings rate to the OECD average would add 0.5 percentage point in the nations GDP.

In 2011, the nation’s economy grew 3.6 percent and last year slipped to 2 percent.

Until the early 1990s, the nation’s savings rate was well above 20 percent, but it began to fall during the financial crisis of the late 1990s. This change was further fueled by the recent global credit crisis, as disposable income shrank at a time of low interest rates on savings accounts and increasing debts burdens.

Disposable income grew in the range of 10 percent annually in the 1990s, but has been about 5 percent since 2000. The report stressed that every time the household savings rate drops 1 percentage point, economic growth contracts by 0.19 percentage point and investment growth 0.2 percentage point.

“Not only will the falling housing savings rate affect the nation’s economic expansion in the long run, but it also could result in much larger problems, such as increasing the number of credit delinquents and individual bankruptcies,” said Kim Cheon-koo, HRI senior researcher.

By Lee Ho-jeong []
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