Growing downside risks at home and abroad are heightening the need for concerted policies to prevent their potential fallout from jolting South Korea’s economy.

Asia’s fourth-largest economy is showing signs of losing recovery momentum amid a build-up of financial imbalances.

Government data released last week showed that the country’s industrial output, retail sales and facility investment declined on-month in August in the latest sign of recovery momentum weakening, partly held back by the fourth wave of the pandemic.

Industrial output and retail sales fell 0.2 percent and 0.8 percent, respectively, in August, recording their second consecutive monthly declines. Facility investment dropped 5.1 percent, the steepest fall in 15 months, after rising 2 percent in July. It marks the first time since May that the country has seen a simultaneous decrease in the three sectors of economic activity.

Economic policymakers say that the current wave of the pandemic has dampened domestic demand to some extent, but the economy remains on a recovery track on the back of robust exports.

There are still concerns that the country’s economy might be rattled by external risks coupled with mounting internal financial imbalances.

US Federal Reserve Chair Jerome Powell last week said that inflation has stayed higher for longer than he thought, pledging to firmly respond if inflation concerns continue to grow. His remarks raised the possibility that the US central bank would begin tapering its asset purchases and raise its key policy rate sooner than expected.

Supply chain problems weighing on global economic growth could still get worse, holding inflation up around the world well into next year.

A possible taper tantrum of the US economy and monetary policy tightening by other major economies could deal a severe blow to South Korea’s economy, which has seen bloated liquidity push up asset prices.

In addition, China’s economy has been plagued by the debt crisis in property developer Evergrande Group and a prolonged shortage of electricity, heightening global economic uncertainties.

Heads of South Korea’s fiscal, monetary and financial authorities held a meeting last week for the first time since February to discuss macroeconomic issues faced by the country. A statement issued after the meeting presided over by Finance Minister Hong Nam-ki, who doubles as deputy prime minister for economic affairs, said the participants agreed to push for a harmonious mix of policies to support the economic recovery and ease financial imbalances.

Hong struck a right note at the meeting by emphasizing the need to make a preemptive response to risks posed by global inflation and interest rate hikes.

Thursday’s discussion by the top policymakers focused on how to curb a steep rise in household debt.

According to recent data from the Bank of Korea, the country’s household credit reached a record high of 1,805.9 trillion won ($1.53 trillion) in June, up 41.2 trillion won from three months earlier. Household debt growth has shown no signs of letting up as many people, particularly those in their 20s and 30s, have striven to take out loans to buy homes and invest in stocks and other assets in anticipation of higher prices.

In a bid to rein in mounting household debt and prices, the BOK raised its benchmark interest rate in August by a quarter percentage point to 0.75 percent from a record low of 0.5 percent in place since May last year. State financial regulators are aiming to bring the annual increase in household debt, which grew 7.9 percent on-year in 2020, to below 6 percent this year and below 5 percent next year.

But it would be improper and insufficient to limit policy focus to curbing household debt.

South Korea’s national debt, which remained at 660 trillion won in 2017, is projected to exceed 1,000 trillion won next year. Accordingly, the ratio of national debt to gross domestic product is set to increase from 36 percent to 50.2 percent over the cited period.

Marginalized firms, whose operating profits have hovered below their debt-servicing costs for three consecutive years, currently account for more than 15 percent of local companies subject to external audit. The proportion is the highest on record.

Aside from efforts to rein in household debt, the government should now hurry to secure fiscal room and accelerate corporate restructuring in preparation for possible economic shocks down the road. It is worrying that President Moon Jae-in’s administration is only poised to adhere to reckless fiscal spending while continuing to neglect work needed to bolster economic fundamentals for the rest of Moon’s five-year tenure, which ends in May.