Moody’s maintains its stable outlook on Seoul

Global rating agency Moody’s Investors Service said Monday that it has maintained its rating of Korea at ‘Aa2,’ citing the country’s resilience to global shocks, eased geo-political risks and sound public finances.

The rating agency also said its outlook for Asia’s fourth-largest economy remains stable.

Moody’s said Korea’s large and diversified economy will continue to demonstrate resilience to global shocks, while geopolitical risk owing to historical tensions with North Korea have ebbed.

“South Korea’s public finances will remain sound and are further enhanced by ongoing implementation of structural reforms,” Moody’s said.

The rating agency said it expects South Korea’s healthy real GDP growth to continue in the near term, supported by the still-favorable outlook for external demand, accommodative fiscal policies and robust consumption on the back of steady income growth.

However, over the medium term, Korea’s growth potential is likely to slow as an aging population leads to declines in the working age population. “These effects will be partly offset by comparatively strong productivity growth, supported by investment in innovation.

Beside robust growth potential, Moody’s expects Korea’s economy to continue to show a high degree of resilience to unexpected developments.

While rising trade protectionism poses risks for trade-reliant economies, the Korean economy’s broad diversification, high level of competitiveness, and fiscal space mitigates its export dependency, Moody’s said.

Rather, overall economic conditions are unlikely to be directly impacted by tightening global liquidity conditions or capital flow volatility on account of Korea’s very large external buffers, it added.

In regard to the geopolitical climate on the Korean Peninsula, the ratings agency said despite the recent thawing of tense relations between the United States and North Korea, overall conditions remain unpredictable and heightened tensions down the road remain a distinct possibility.

Moody’s said its assessment of the threat to Korea’s profile posed by geopolitical risk remains “moderate”. “Even if the risk of armed conflict has ebbed more recently, considerable uncertainties related to the peace process persist,” it said.

Moody’s said it would consider upgrading Korea’s sovereign rating if there was a material and irreversible reduction in geopolitical risk, and in particular a lowering of the threat of warfare on the Korean peninsula.

Yonhap