Korea is at risk of a drawn-out economic slump that is worse than Japan's "lost decade" in the 1990s, according to some projections.
The forecast is based on economic indicators that resemble Japan's when in the early stages of the doldrums, with the difference that Korea's youth unemployment and household debt are even worse.
The first indicator of Japan's slump was a sharp decline in private consumption. The average 3.6-percent growth during the 1980s dropped to 1.9 percent in the 1990s.
A similar trend is happening in Korea. Private consumption grew 4.3 percent on average from 2000 to 2007 but has slowed to 2.2 percent. It increased 2.6 percent in 2017, but that falls to 1.6 percent excluding the amount of money Koreans spent overseas.
◆ Youth Unemployment
The crisis facing Korea is most apparent in two different age groups: youth and the elderly. Last year, Korea's youth unemployment rate stood at 9.5 percent and last month it rose even further to 10.5 percent, a record for the month of May.
Japan's youth unemployment in the 1990s stood at five to six percent. In 1994, when Japan officially became a graying society, youth unemployment stood at only 4.8 percent.
Sung Tae-yoon at Yonsei University said, "Youth employment marks the start of a cycle of consumption like car purchases, marriage and buying a home, but many young Koreans are not even able to start this process."
Low-price stores like Uniqlo and 100-yen shops were all the rage in Japan in the 1990s, and the same trend is now happening here. One-price shop Daiso saw its revenues surge 26 percent to W1.65 trillion (US$1=W1,118). Most customers are young people.
Yukiko Fukagawa, an economist at Waseda University, said, "The fact that young Koreans are buying cheap products instead of cars or homes is a sure-fire signal of a drawn-out economic slump. The sharp increase in minimum wage resulted in a drop in the number of part-time jobs on offer, making the situation worse."
◆ Low Cash Reserves of Elderly
The situation is also dire for senior citizens, with a large number of the burgeoning elderly population falling into poverty. The average age of Koreans in the bottom 20 percent of the income bracket in the first quarter of this year was 62.6, just 10 years older than the average age of the breadwinners. And the amount of their spending money is vanishingly small.
The proportion of cash and money deposits they hold is just 18.8 percent, less than half of the 41.5 percent in Japan in 2014.
The Bank of Korea pointed out that private consumption in Japan is currently led by the elderly population, but in Korea they have no money to spend. At a time when assets are primarily focused on real estate, a sharp decline in property values could deal a fatal blow to Korea's economy.
◆ Household Debt
The debt problem is also alarming. In 1990s, Japan saw the amount of debt shouldered by businesses reach 140 percent of GDP. In Korea, as of the third quarter of 2017 corporate debt reached 99.4 percent of GDP.
But the real problem is household debt, which stood at 94.4 percent of GDP in the third quarter of last year. In Japan, household debt never surpassed 70 percent of GDP.
Lee Ji-pyeong at LG Economic Research Institute said, "In Japan, the high corporate debt posed a threat aggravated by the property bubble, while corporate insolvencies ended up impacting households. But Korea already suffers from astronomical household debt, and if the property bubble bursts, households will face an instant crisis, resulting in a slowdown in private consumption, so the threat is even bigger here."