Standard & Poor’s kept South Korea’s sovereign credit at the third highest on its rating scale with a stable outlook, despite the country’s weaker growth prospects and stalemate in North Korea’s nuclear talks.
The international rating agency affirmed Wednesday Korea’s long-term debt rating at “AA` and short-term debt at `A-1+` with a stable outlook, indicating no rating changes in the future unless there are major risks related to North Korea.
“Korea`s record of steady economic growth has resulted in a prosperous economy, high fiscal and monetary flexibility, and a robust external position,” the ratings agency said in the overnight report. “The stable outlook reflects our expectation that geopolitical risks on the Korean peninsula will not escalate to the point of hurting Korea`s economic fundamentals over the next two years.”
The benchmark Kospi finished Thursday up 0.01 percent at 2,144.29. The Korean won fell 2.40, or 0.21 percent, against the U.S. dollar to 1,159.30.
Korea’s rating has been held steady at AA since August 2016 after being upgraded from AA-.
S&P kept the rating unchanged even as it revised down projections for Korea’s economic growth three times this year, from 2.6 percent in January to 2.4 percent in April, to 2.0 percent in July, and to 1.8 percent in November.
“Korea’s economic growth rate could decline toward the average level among its rating peers, as the country becomes wealthier and its labor force ages,” the rating agency said in a report. “We expect broad continuity in economic policies over the coming two years.”
Korea’s exports have slumped for the 11th straight month in October as global trade uncertainties and a prolonged downturn in Korea’s mainstay chip sector weighed heavily on the trade-reliant economy. Consumption at home has also remained sluggish, with the country’s inflation standing at zero in October after hitting negative territory for the first time in September.
North Korea remained the biggest risk to the South Korean economy, S&P noted.
“We may raise the sovereign ratings if the security risks and contingent liability risks posed by North Korea recede. We would lower the ratings if geopolitical tensions related to North Korea intensify to a point that they negatively affect Korea`s economic, fiscal, or external performance,” it said.
North Korea has ratcheted up tensions with the South and the United States by conducting more than a dozen short-range weapons tests this year amid a deadlock in nuclear talks with Washington. But hope for a breakthrough was revived this week after South Korean intelligence reports revealed that North Korean leader Kim Jong-un is seeking a third summit with U.S. President Donald Trump next month.
By Kim Hyo-jin
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