Moody’s view on Korea is sunny
It has been four months since Finance Minister Choi Kyung-hwan announced policies targeted at preventing the economy from falling into a state of deflation like what Japan is now facing.
The policies, called Choinomics, included tax cuts and eased real estate regulations and they helped improve consumer sentiment.
But now some critics have started to question the effectiveness of Choi’s aggressive policies as the domestic economy faces a new challenge: slow growth in global economies such as China, Japan and Europe.
Although the Bank of Korea revised its growth outlook last month from 3.9 percent to 3.7 percent for this year, many in the industry are now saying that figure is also too optimistic.
In fact many leading Korean companies such as Samsung Electronics and Hyundai Motor reported disappointing performances in the third quarter. And some local brokerage firms projected that fourth quarter performances are not likely to improve much, partially because of the depreciating Japanese yen.
Despite the negative signs, global ratings company Moody’s Investors Service on Thursday announced that it supported Choinomics and maintained its positive outlook on the Korean economy.
At a media briefing held in downtown Seoul, Moody’s said it would retain its sovereign credit rating of Aa3 for Asia’s fourth-largest economy.
The rating company said in a statement said that the Aa3 rating reflects the country’s “very high economic strength, institutional strength and fiscal strength.”
It added that Korea’s strength is supported by its competitive export industries and large holdings of foreign exchange reserves, which reduce the economy’s vulnerability to external forces.
It also gave high marks to the Korean government’s aggressive fiscal measures for investment and job creation.
“The [Korean] economy has some distance to go before it reaches the government projection [of 4 percent growth], said Thomas Byrne, Moody’s Sovereign Risk Group Singapore senior vice president. “However, business investment and gross capital investment have been providing support [for] economic growth.”
Chris Park, senior vice president of corporate finance at Moody’s Hong Kong said moderate global economic growth as well as the Korean government’s monetary and fiscal stimulus will provide stable growth, particularly for nonfinancial companies here.
“Korea’s positive macroeconomic situation is presenting a favorable environment for Korean companies,” Park said. “Furthermore we expect that many sectors will see a slight improvement in their financial leverage, driven by a recovery in earnings from a low base in 2014 and or reduced capital expenditures.”
He said the Korean central bank’s decision to keep the borrowing rate low, which is contributing to large liquidity, is also favorable for local companies.
Although 80 percent of Korean companies have weak liquidity, most have access to domestic and overseas financial markets, he said.
Moody’s projected that Korea’ economic growth for this year would be 3.5 percent. Although this is lower than the 3.7 percent outlook offered by the central bank, the rating company stressed that the growth is much stronger than in other advanced economies, including the United States, Europe and Japan.
By KIM EUN-JI [firstname.lastname@example.org]