South Korea’s overheated property market to hurt economic growth in 2018 and 2019, warns ADB
The bank has revised growth projections down to 2.9pc and 2.8pc for 2018 and 2019 respectively, against the previous 3pc and 2.9pc
The Asian Development Bank has issued a fresh warning over South Korea's overheated property market ignited by loose credit policies in recent years.
The bank cautioned that growth in Asia’s fourth-largest economy would slow further this year and in 2019 not only because of the ongoing US-China trade war, but also due to the high degree of vulnerability from its housing sector.
The internal and external factors had warranted the ADB to lower South Korea's growth projection to 2.9 per cent from 3 per cent this year, and to 2.8 per cent from 2.9 per cent for 2019, according to its recent outlook report.
“Growth in Korea will be lower in both years as exports suffer under higher tariffs imposed by two of its largest trade partners,” the ADB said in the report.
“Elevated housing prices threaten severe growth downturns if prices reverse abruptly … Housing prices that have undergone sharp and sudden reversals, empirical studies showed, tended to be associated with longer and deeper slowdowns.”
The bank attributed the property risk with the country having the “least home affordability on price spikes” to prolonged accommodative monetary policies.