Lower Than Estimates of Korean Gov't, Central Bank
International credit rating agency Fitch Ratings said on Jan. 23 that South Korea’s private investment and exports are likely to slow down, forecasting its economic growth for 2019 and 2020 at 2.5 percent each. That day, the Bank of Korea and the South Korean government forecast this year’s economic growth at 2.6 percent and 2.6 percent to 2.7 percent, respectively.
Fitch Ratings pointed out that the minimum wage, recently raised twice, could result in a slight increase in unemployment rate and hinder job creation for low-skilled workers. It maintained South Korea’s sovereign credit rating at “AA-” and a stable outlook, adding that the upcoming global economic slowdown is likely to have a significant indirect impact on the export-driven economy although the ongoing trade war between the United States and China seems to have a limited direct impact on it.
The credit rating agency forecast that South Korea’s national debt-to-GDP ratio would rise to 43.7 percent until 2022 due to fiscal expansion whereas the South Korean government’s estimate is 41.6 percent. In other words, the country’s fiscal soundness may deteriorate faster than the government’s expectations. Fitch said an unexpected and large-scale increase in public debt could affect the country’s credit rating.
The agency said the geopolitical risks in the Korean Peninsula are still there despite last year’s inter-Korean summits. “The progress of denuclearization so far is not enough to lift sanctions on North Korea and diplomatic processes may be stopped at any time,” it explained, adding, “Korean reunification is unlikely in the near future whereas the risks may significantly affect South Korea’s fiscal conditions.”