“Korea’s export recovery is likely to be gradual, as we expect growth to be subdued in both China and the U.S. next year,” Fitch said. (Image courtesy of Yonhap)
SEOUL, Oct. 17 (Korea Bizwire) – Global credit appraiser Fitch Ratings has reaffirmed South Korea’s sovereign rating at “AA-” with a stable outlook, the finance ministry said Tuesday.
Fitch has maintained the level of AA- for South Korea, the fourth-highest level on its sovereign ratings table, since September 2012 when it upgraded the rating by one notch from A+.
“Korea’s rating balances robust external finances, resilient macroeconomic performance and a dynamic export sector against geopolitical risks related to North Korea, lagging governance indicators relative to ‘AA’-rated peers and structural challenges from an ageing population,” the agency said in the report.
Fitch revised down its growth projection for South Korea for this year to 1.0 percent from its forecast made in March of 1.2 percent and slashed the 2024 outlook to 2.1 percent from the earlier forecast of 2.4 percent.
Its forecasts were bleaker than those made by the International Monetary Fund (IMF), as the IMF forecast a 1.4 percent growth for this year and 2.2 percent for next year.
The weak momentum came as South Korea has logged a sharp decline in exports, a key growth engine, amid a global economic slowdown caused mainly by aggressive monetary tightening by the United States and other major nations to curb inflation.
“Korea’s export recovery is likely to be gradual, as we expect growth to be subdued in both China and the U.S. next year,” Fitch said. “Still, we expect positive export and investment momentum, led by the nascent upturn in the semiconductor cycle, to lift GDP growth to 2.1 percent in 2024.”
Exports fell for the 12th consecutive month in September but logged the smallest on-year decline so far this year.
Outbound shipments of semiconductors dropped 13.6 percent on-year to extend the losing run to the 14th month in a row last month. But September saw the highest monthly export value of US$9.9 billion so far this year, according to government data.
In terms of domestic demand, higher debt service costs will weigh on consumption in the near term, but “the easing inflation and recent fall in lending rates should be supportive going into 2024,” the agency said.
Inflation has eased recently, and the South Korean government has forecast price pressures would begin to further ease starting around October, though consumer prices reported the highest on-year increase of 3.7 percent in five months in September.
It set this year’s target at a 3.3 percent rise, while the figure during the first nine months of 2023 came to 3.7 percent.
“We forecast it to fall further to 1.8 percent by end-2023 and 1.5 percent by end-2024,” Fitch said.
Fitch expected the Bank of Korea (BOK) not to cut interest rates until early 2024, while monitoring the reacceleration in household borrowing, in line with the Federal Reserve’s “higher for longer” policy path.
The BOK has maintained the policy rate at 3.5 percent since January, and it is widely expected to leave the rate unchanged during the upcoming meeting slated for Thursday.
Speaking of geopolitical risks, Fitch said tensions with North Korea remain heightened on the absence of diplomatic dialogue.
“The North’s stance appears firm as it continues missile tests even amid persistent domestic economic challenges, and its recent efforts to enhance its relationship with Russia could complicate diplomatic progress,” the agency said.
South Korea could also face growing economic challenges from the Sino-U.S. tensions, including in the semiconductor field, it added.
(Yonhap)
