Korea’s sovereign rating remains resilient: Fitch
Despite increasing challenges to Korea’s economic outlook, such as high inflation and weak external demand, a renowned global ratings agency views that the country’s sovereign rating still remains at a resilient and solid level.
During a press conference held at Conrad Seoul on Yeouido, Seoul, Friday afternoon, Jeremy Zook, director of sovereign Ratings at FitchRatings, said that the ratings agency sees that Korea’s external finance position provides a sufficient buffer to manage increased external volatility. The press conference was hosted on the sidelines of FitchRatings’ seminar, titled “Fitch on Korea Conference,” held earlier in the day at the same venue.
“At this point, we expect the rating to remain resilient to near-term economic headwinds, reflected by our recent affirmation of Korea’s ‘AA-’ rating with a stable outlook in September,” Zook said at the press conference. “Korea maintains sufficient external and fiscal buffers, in our view, to navigate the near-term challenges. That said, there are a number of risks that we are watching related to external and domestic market volatility, high household debt and geopolitical risks” Regarding the country’s debt-to-GDP ratio, Zook said Korea’s government debt is still at the ‘AA’ median, although it has risen considerably during the pandemic.
“Korea’s debt-to-GDP ratio has risen considerably during the pandemic to our forecast of 49.5 percent. However, this is still right in line with the ‘AA’ median. The 2023 budget presented by the administration proposed a significantly narrower deficit in 2023 and beyond,” he said.
The global ratings agency director also said that the country’s rising household debt remains at a manageable level, despite its rapid increase during the past few years.
“We view household debt as a manageable vulnerability amid rising rates and slowing growth. Rising rates will push up household debt-service burdens, given that a very high share of almost 80 percent of outstanding loans are on variable rates. In the absence of a more severe economic shock, this is likely to result in weaker household consumption rather than financial stability risks,” Zook said.
When it comes to the economy’s growth forecast, he elaborated that Korea’s GDP growth outlook is forecast for 2.6 percent in 2022. But the outlook is expected to be lowered to 1.9 percent during the next year due to growing downside risks, including tightened monetary policies and slightly decreased foreign exchange reserves.
In particular, he mentioned that Korea’s inflation rate is currently somewhat higher than those of other developed countries. However, the ratings expert added that inflation would decline to five percent by the end of the year, as the Bank of Korea (BOK) will likely take an additional interest rate hike later this month.