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The Wall Street Journal: During Joe Biden’s presidency, the U.S. alliance with South Korea has strengthened. But the country’s economy has fallen victim to America’s skyrocketing interest rates. Because of that, the Bank of Korea raised interest rates 10 times in less than a year and a half, bringing them to 3.5% by January. Korea has had to deal with its own inflation problem, as well as cool the housing market, which two years ago risked turning into a bubble. But if the Fed doesn’t cut rates for much longer, the Korean economy could weaken.
The International Monetary Fund forecasts that the Korean economy will grow just 1.4 per cent this year. The Korean won has lost about 7 per cent of its value against the US dollar since the beginning of the year. Rising oil prices as a result of the war between Israel and Hamas has been another factor complicating the central bank in Seoul. Consumer price inflation hit 3.7 per cent in September after months of easing, well above the central bank’s 2 per cent inflation target. One of Korea’s major problems is rising household and corporate debt. Nomura estimates their debt rose to nearly 229% of GDP in the second quarter, the highest in three decades. Interest payments are close to multi-decade highs and indebted households are now using about 40% of their income to pay off debt.
The entire article can be read at the link Fed Rate Moves Squeeze a Key U.S. Ally – WSJ
