Moody’s warns of tough times for automakers

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Moody’s warns of tough times for automakers

A global ratings agency warned Tuesday that American protectionism could deal a harsh blow to Korea’s auto industry, painting a dark picture of prospect for Hyundai Motor and its affiliates.

“Even if the trade row between the United States and China worsens, it will have a limited impact on most Korean companies,” said Chris Park, associate managing director at Moody’s.

“Still, potential U.S. tariffs, although unlikely, would have a significant impact on Korean auto companies,” he said.

The assessment came after Moody’s trimmed its projection for Korea’s gross domestic product growth to 2.5 percent this year and 2.3 percent next year. Those are lower than projections by local institutions like the Bank of Korea and the Korea Development Institute, which both predict 2.7 percent growth for this year.

In his presentation, Park picked the auto industry as “most exposed” to the risks of U.S.-China trade tensions while telecommunications and retail sectors were described as being the most immune. Park said that Hyundai Motor’s four affiliates - Hyundai Motor, Kia Motors, Hyundai Glovis, and Hyundai Mobis - and SK Telecom are the only five Korean companies out of 23 companies Moody’s rates to have negative outlooks.

KCC, a construction materials manufacturer, is under review for a lowering of its credit rating because its planned acquisition of Momentive Performance Materials, a U.S.-based silicone manufacturer, could put a strain on the company’s finances.

Park said the prospects for other industries - including banking, electronics, semiconductor and steel - remain sound with a stable flow of profits. As for the broader state of Korea’s economy, different risks loom large.

“While South Korea’s exports are exposed to the U.S.-China trade tensions via supply chain linkages, outlook for external demand and domestic labor market policies have weighed on the economic sentiment, as well as actual investment,” said Christian de Guzman, senior credit officer of the Sovereign Risk Group at Moody’s, at a press briefing in Seoul.

Guzman cited an ageing population and geopolitical risks as long-term risks for the country’s economy.

“We’ve lowered our assessment of the geopolitical risks given many positive developments earlier this year, such as the summits between the two Koreas as well as the U.S. and North Korea. But we still think the prominent and endurable easing of the bilateral tensions are far from certain,” he stated. In the short-term, the ratings agency cautioned about weak domestic demand, an unfavorable jobs situation and rising domestic uncertainties stemming from the government’s push to raise the minimum wage and cut working hours.

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

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