Moody’s reaffirms Korea’s rating at Aa2, ups GDP outlook

2017.07.06 13:57:24 | 2017.07.06 16:34:43

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Global credit rating agency Moody’s Investors Service upped the growth outlook for the South Korean economy this year to 2.8 percent, reflecting the stronger-than-expected pickup in the first quarter, while reaffirming the country’s sovereign credit rating at Aa2 with a stable outlook, said the Korean Ministry of Strategy and Finance on Wednesday.

The upgrade in growth forecast - bumped up from 2.5 percent estimated in May - and confirmation on the rating outlook on the third-highest in its rating tier by the international rating agency came amid escalating tensions in the Korean Peninsula with talks of tougher UN Security Council sanctions and even military option after North Korea on Tuesday carried out its first inter-continental ballistic missile test.

“The government of Korea’s Aa2 rating reflects Korea’s `Very High` economic strength and fiscal strength and ‘Moderate (-)’ susceptibility to event risks stemming from North Korean military provocation and regime instability,” the agency said.

It also predicted the Korean economy to keep up pace of between 2 percent to 3 percent over the next five years. “We expect Korea to post the fourth-highest average growth rate among highly rated advanced economies for the period of 2011-2020,” it added.

The positive outlook by a major rating agency, however, fell short of lifting the Korean market under wait-and-see mood from renewed geopolitical risks. The main Korean composite stock price index closed on Thursday down 0.54 points at 2,387.81. The won was slightly higher at 6.9 won against the U.S. dollar at 1,157.4. The five-year government bond yield gained 1.2 basis points to 1.970 and the three-year government bond yield 0.5 basis points to 1.750.

Moody’s has kept Korea’s sovereign debt rating at Aa2 since December 2015 - the highest in Asia and sixth highest across the world.

Other global institutions have been upgrading Korea’s growth outlook for this year after the gross domestic product in the first quarter grew at faster-than-expected pace of 1.1 percent.

Barclays, Citigroup, and Bank of America raised their estimates for Korea’s annualized growth for this year to 2.9 percent from 2.6 percent. Morgan Stanley, Deutsche Bank, and Goldman Sachs upped theirs to 2.8 percent.

The Bank of Korea is expected to revise up its previous 2.6 percent growth outlook next week.

By Seok Min-soo

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