Global credit rating agency Standard and Poor’s (S&P) revised down South Korea’s economic growth outlook this year to 2.0 percent from 2.4 percent, becoming the latest in turning more negative about Asia’s fourth largest economy.
“High inventories, particularly in the electronics sector, and rising uncertainty about the global trade outlook will continue to weigh down production and private investment,” the agency said in a report released on Wednesday. “Meanwhile, the labor market remains relatively weak, leading to weaker consumption,” it added.
S&P expected that Bank of Korea would cut its benchmark rate by 0.25 percentage point within this year. The country’s consumer price index (CPI) would reach 1.1 percent this year and 1.5 percent next year, it predicted.
The agency slashed its forecast for Korea’s gross domestic product (GDP) for the second time since April when it cut the figure from 2.5 percent to 2.4 percent. It also lowered its Asia-Pacific growth outlook to 5.1 percent in both 2019 and 2020 from 5.2 percent, citing the “drag from trade tensions.”
In a separate report titled “When The Cycle Turns: Korean Corporate Credit Quality Feels The Squeeze” released on the same day, S&P said “for the first time since 2014, the credit quality of Korea’s top 200 companies has weakened as a result of rising debt and stalled earnings in 2018.” It also expected Korean firms would experience downward pressure on their credit quality over the next 12 months due to “economic slowdown amid heightening trade tensions, aggressive financial policies with rising capital expenditure (capex) and shareholder returns, as well as ongoing regulatory risks.”
The agency also expected macroeconomic indicators to decelerate in China, the U.S., the Eurozone and Korea given its economic growth outlook for 2019. It said a number of headwinds including demand slowdown and rising trade tensions will weigh on Korean companies’ operations for the next 12 months.
S&P is not the only one who predicted a grim outlook on Korea’s economic growth. In May, the Organization for Economic Cooperation and Development (OECD) slashed its 2019 growth outlook for the Korean economy from 2.6 percent to 2.4 percent, citing a decrease in fixed investment following restructuring in the manufacturing sector, and slowdown in job creation. Moody’s Investors Service also cut its growth estimate for Korea this year from 2.3 percent to 2.1 percent, and Fitch from 2.5 percent to 2.0 percent. Private institutions place growth estimate below 2.0 percent.
By Chung Seok-hwan and Choi Mira
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