South Korea finance minister says to address household debt, cites downside economic risks

August 24, 2016 10:14 PM EDT

South Korea's finance minister Yoo Il-ho answers questions from reporters during his visit to a port in Pyeongtaek, South Korea, January 15, 2016. REUTERS/Kim Hong-Ji

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SEOUL (Reuters) - South Korea's finance minister said on Thursday that the government will address concerns about oversupply in the property market, and said downside risks are growing for Asia's fourth-largest economy.

Speaking to other ministers in Seoul, finance chief Yoo Il-ho said the government will respond to risks related to household debt by encouraging amortized, fixed-rate loans instead of interest payment-only loans.

The government will "seek stable management of household debt that is pointed out as a risk to the economy," Yoo told ministers attending the meeting.

With interest rates at an all-time low, household debt in South Korea is at a record high, undermining domestic demand even as exports have fallen for nineteen straight months.

Yoo added that the introduction next month of an anti-graft law, which imposes spending limits on gifts and meals for public servants and others, would constrain the economic recovery in the second half of this year.

The number of unsold new homes rose 8.2 percent in July from a month earlier, after jumping at a record pace late last year, signaling an end to a two-year surge in sales fueled by low interest rates.

South Korea's economy grew at an unexpectedly robust 3.2 percent annual rate in the second quarter, but analysts said the lift would probably be temporary given weak exports and expected job losses from an ongoing overhaul of the country's shipping and shipbuilding industries.

(Reporting by Cynthia Kim; Editing by Shri Navaratnam)

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