Moody’s hikes growth outlook for 2017 to 3%

Global rating agency Moody’s upgraded its outlook for Korea’s economic growth this year to 3 percent from 2.8 percent Friday, on par with estimates by the country’s central bank and IMF, both of which upwardly revised their forecasts due to stronger-than-expected economic indicators.

The revision came a day after Korea’s gross domestic product growth hit a seven-year high in the third quarter, owing to strong exports and government stimulus.

The agency cited high income levels and sound government fiscal fundamentals as the reason for pushing up its projection.

“Korea’s credit profile is supported by very high economic strength given a diversified and competitive economy, with robust growth potential (around 3% over the next five years), and high income levels (around $37,730 per capita in purchasing power parity terms in 2016),” it said in a statement.

It went on to note the government’s sound financial state, a factor that contributed to mitigating lingering risks associated with the tensions with North Korea.

“Moreover, the government’s fiscal fundamentals are also very strong, due to a prudent fiscal stance that maintains government debt at moderate levels (38.3% of GDP in 2016) and supports debt affordability,” Moody’s said.

But the agency remained cautious about any potential impact from the escalation of geopolitical tensions with the North.

“However, elevated geopolitical risks given tensions with North Korea (unrated) are the key credit constraint,” it said.

The adjustment is in line with the changes from major institutions. The International Monetary Fund raised its economic outlook for 2017 to 3 percent, which was followed by the Bank of Korea’s revision to 3 percent from its previous 2.8 percent.

Their projections are likely to be met after third quarter GDP growth of 3.6 percent.

The Bank of Korea said even if the country registers minus 0.54 percent growth in the fourth quarter, it could see annual growth of 3 percent.

Meanwhile, Moody’s also upgraded Posco’s credit rating to positive from stable, while holding its Baa2 rating.

“The rating actions mainly reflect our expectation that Posco’s financial profile will continue to improve over the next 1-2 years, underpinned by an increase in earnings and debt reductions,” Gloria Tsuen, Moody’s vice president and senior analyst, said in a statement.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]