Moody's Predictions

 

Senior Vice President of Moody’s Tom Byrne predicted that Korea would join the ranks of advanced economies in 2018. According to Moody’s, Korea’s credit rating is AA3 with a stable outlook.

He joined a press conference held at the Lotte Hotel in Euljiro, Seoul, on May 28, and said, “Korea is maintaining its industrial competitiveness very well in spite of the currency appreciation pressure, and is likely to catch up with France in terms of purchasing power and per-capita GDP in 2018.”

These days, concerns over deteriorating profitability are on the rise in the small open economy structure of Korea, amid the recent appreciation of the won. Still, the senior vice president pointed out that the enhancement of industrial competitiveness matters more than the concerns.

“Korea’s export performance is somewhat worsening nowadays due to the decreasing demand from advanced economies,” he added, “However, this is unlikely to pose a significant problem, because Korea’s competitive edge is still sharper than that of other countries.” He continued, “Japan could not increase its exports to a large extent during the past year, despite quantitative easing and the subsequent depreciation of the yen, which means Korea is outperforming Japan when it comes to industrial competitiveness.”

Moody’s has recently estimated Korea’ economic growth rate at 3.8 percent in view of its pace of growth faster than those of the others in the G20. According to it, the growth rate may rise to up to 4 percent, but the high level of household liabilities and sluggish external demand could act as roadblocks.

“Korea is showing fiscal soundness for now, but private consumption is on the decline due to high household debt, and also problematic are the potential deterioration of the fiscal conditions and the decreasing export demand for the global economic recession,” he explained, warning, “Some burden may be imposed on the government in a case when public funds have to be injected due to an increase in contingent liabilities or insolvency in the banking sector.” He also remarked, “As far as I know, the Korean government and the National Assembly have had in-depth discussions about how to reduce the debt ratio of state-run enterprises, and the credit rating of Korea will be further improved if the plans are in progress as desired.”

In the meantime, he predicted that the North Korea risk would be a minor factor in Korea’s credit rating because little change is in sight. “In the past year, the tension between the two Koreas has shown no signs of surging, and the possibility of the collapse of the regime has remained as it is, which means there is enough room for the improvement of South Korea’s economic fundamentals unless the balance of power is broken, or provocative actions are taken by the North,” he said, emphasizing, “In addition, a very positive effect will be available if the South takes a leading role in peaceful reunification of the two Koreas.”

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution