SOUTH KOREAN households are piling on debt at the fastest rate in eight years thanks to big-bang stimulus launched by the new finance minister.

    But as global growth cools, the government risks scoring an economic own goal and inflaming deflationary pressures.

    That would be particularly ironic as Finance Minister Choi Kyung-hwan has repeatedly warned that Asia’s fourth-largest economy is in peril of slipping into Japan-style deflation, which kept growth in the land of the rising sun stagnant for two decades.

    Choi, however, wouldn’t have expected the chill that’s enveloped the global economy since he took office in July, analysts say, and immediately set about re-energising the economy with an US$11-billion-plus stimulus package.

    The impact has been seen in the debt binge by South Korean households, which boosted borrowing from banks by a net 9.32 trillion won (US$8.83 billion) during the August-September period mainly to buy homes, central bank data showed. The debt build-up is the most since the November-December period of 2006.

    Home purchases and retail sales have grown sharply since August, with the pickup aided by two interest rate cuts, widely seen to have been made under pressure from the government.

    “The broad view [in June, when Choi was nominated] was the global economy would be doing fine although domestic demand was lagging behind, but the situation has changed sharply by now as we just saw from the gross domestic product data,” said Oh Suk-tae, economist at SG Securities in Seoul. (SD-Agencies)