Fitch upgrades outlook for Korean economy to ‘stable’
A Korea Exchange Bank employee fans out a handful of 100 bills dollar yesterday at the bank’s head office in Myeong-dong, central Seoul. According to the BOK, the country’s foreign exchange reserves climbed to 245.46 billion dollar as of end of August, up 7.95 billion dollar from the previous month. [YONHAP]
In a statement released by the Ministry of Strategy and Finance, the global credit rating agency said that it has raised Korea’s sovereign credit outlook from negative to stable and will maintain the nation’s A+ rating.
Fitch, which launched a three-day on-field review of Korea in July, said in its release that it attributed the upgrade to the government’s efforts to overcome the economic crisis and to the improvement in its macroeconomic data and foreign currency liquidity, among other factors.
“South Korea’s sovereign credit fundamentals have regained ground against the ‘A’ peer group, warranting an outlook revision to stable,” said Ai Ling Ngiam, director at Fitch’s Asia Sovereigns, in the statement. Last November, Fitch lowered its outlook on Korea from stable to negative, citing concerns over the deleveraging of the banking system.
In its report, Fitch said the foreign currency problems that local banks had experienced during the global credit crunch have eased since the second quarter of the year. It added that the quick recovery of exports had also been a factor as Korea’s economy is export-led, raising concerns during the recent global downturn. According to the ministry, Korea is the only investment-grade country to have its sovereign rating or outlook raised this year by Fitch. The agency downgraded the credit ratings or outlooks on countries it monitors 27 times this year. Last year, five other countries had their outlooks underrated when Korea received a negative outlook on Nov. 10, but none of them has recovered back to a stable outlook so far.
“Korea’s upward revision in the outlook means a lot because it comes amid a significant amount of downgrading of sovereign ratings and outlooks worldwide in the wake of the global financial crisis,” said Kim Ik-joo, director general of the Finance Ministry’s International Finance Bureau, during a media briefing.
Fitch said Korea’s growing fiscal deficit, which is a result of its emergency policies against the economic slump, is not a serious problem and will subside faster than that of many other countries.
“Fitch anticipates Korea’s economic resiliency and the authorities’ upcoming efforts to re-establish a conservative fiscal agenda will likely provide scope for the government to revert to a fiscal balance position by 2011, with Korea being only one of six among all Fitch-rated sovereigns to do so from a deficit position,” it said.
In July, the Bank of Korea estimated that the country’s GDP had grown 2.3 percent in the second quarter from a quarter earlier, from a 0.1 percent growth in the first quarter and a 5.1 percent contraction in the fourth quarter. Yesterday, Finance Minister Yoon Jeung-hyun said the second quarter growth is likely to be higher than estimated, in the 2.6 percent to 2.7 percent range.
In addition, industrial output grew from a year earlier for the first time in nine months in July. The current account, a measure of trade, also posted a surplus for six straight months through July this year. Thanks in part to the easing signs of the economic slump, the local benchmark Kospi rose around 59 percent from a yearly low in March through yesterday.
The Fitch rating on Korea, A+, held since October 2005, is the fifth highest in its 24-level rating system. It still is one notch lower than AA-, the rate given to Korea before the 1997-98 Asian financial crisis. Moody’s and S&P, two other major credit rating agencies, maintain the sixth highest rating for Korea each, both lower than what they gave to Korea before economic problems in the late 1990s.
By Moon Gwang-lip [joe@joongang.co.kr]
with the Korea JoongAng Daily
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