Moody’s keeps ‘Aa2’ rating on Korea, eyes 2.5% growth
Global credit appraiser Moody’s Investors Service said Thursday it has affirmed its credit rating on South Korea at “Aa2,” with a stable outlook.
Moody’s has maintained the country’s sovereign credit rating at “Aa2,” the third-highest level on the company’s table, since December 2015, when the agency upgraded it from “Aa3.”
“The affirmation of the rating is supported by (South) Korea’s very high degree of economic diversity and competitiveness, its still-strong fiscal buffers, and vigilant institutional management around key challenges,” the agency said in a report.
The stable rating outlook reflects “limited risks” to the country’s credit profile, as its credit fundamentals will remain exposed to material and long-lasting impediments to global trade, the agency said. It also noted that longer-term credit constraints for the sovereign are centered mostly on the government’s ability to implement structural reform in the face of rapid population aging.
Moody’s expected the South Korean economy to grow 2.5 percent this year, accelerating from last year’s 1.4 percent expansion, “as the semiconductor cycle sees a recovery and facilities investment picks up.”
The forecast was rosier than the growth outlook of 2.2 percent presented by the South Korean government and the Organization for Economic Cooperation and Development.
The Bank of Korea forecast a 2.1 percent growth, and the International Monetary Fund presented a 2.3 percent expansion.
Moody’s expects that the country’s growth rate “will slow to hover around the 2 percent mark in the long run after decades of economic outperformance,” though concerted policy efforts to keep abreast of technological innovation, along with competencies in some supply chains, “will be sufficient to preserve growth at rates that are in line with advanced economy peers.”
Exports, a key economic growth engine for South Korea, rose for the sixth consecutive month in March after a yearlong downturn, driven by solid global demand for semiconductors.
Speaking of geopolitical risks surrounding North Korea, the agency said decadeslong tensions on the Korean Peninsula are unlikely to have a significant impact on the South Korean economy and its financial circumstances.
“Under Moody’s baseline scenario, geopolitical risks will remain at current, noisy levels. Such a scenario is characterized by further missile and nuclear testing, as well as saber-rattling and rhetorical altercations, but crucially no outright military conflict,” the report read.