Moody’s on Korean Economy
Moody’s senior vice president Tom Byrne said that both household debt and debts incurred by state-owned enterprises could drag down the Korean economy next year. The remarks were made at the 11th Annual Conference, organized by Moody’s and the Korea Investors Service, and held at the Conrad Seoul on November 14. He predicted that Korea’s economy will grow as much as 4% in 2014.
The senior vice president pointed out, “Although the sovereign credit rating of Korea is maintained at Aa3 owing to the nation’s excellent financial health, its credit rating doesn’t go up because of a rise in public corporations’ debt and household debt.”
He also said that Korea’s economic growth will depend on the household debt ratio.
In 2008, debts owed by public corporations totaled 290 trillion won (US$272 billion), but soared to 493 trillion won (US$463 billion) last year. Public firms’ debts are likely to surpass 500 trillion won (US$470 billion) this year, which is a big burden on the nation’s finances.
In 2009, the proportion of public corporations’ debt to national debt was 93.7%, but exceeded 100% the following year. In 2012, the figure jumped to 111.2%, and public firms’ debt-to-GDP ratio approached 40%.
Vice President Byrne said, “The problem is that public sector debt is bigger than government debt on account of an increase in public sector debt,” adding, “But if the debt problem is properly managed, a constraint on the country’s credit profile will be relieved.” He went on to say, “I think that the world’s 13th-largest economy will grow a lot within one year. Its annual growth rate is expected to be 3.5%, but 4% is also possible.”
He cited signs of economic recovery in China, the US, and the EU as the reason for Korea’s economic growth. Moody’s VP also mentioned that China’s economy will continue to grow by 7.5%, and that the US economy has been steadily recovering. He concluded by saying, “I believe that East Asian countries’ credit ratings are going to be steady. Since the East Asian market has already been affected by the reduction of quantitative easing, Korea doesn’t have to worry about fluctuations in cash flow.”