Rosy Prediction
Moody’s predicted that Korea’s GDP would grow 3.8 percent in each of 2014 and 2015. The leading international credit rating agency published a report on June 9, saying that Korea’s economic fundamentals are still robust despite the negative factors such as the Sewol ferry disaster and the massive debts of state-run enterprises and households.
Moody’s explained in the report that the Korean economy has been on a recovery track since 2012 thanks to its high export competitiveness and the government’s economic stimulus packages that have more than offset the appreciation of the won and increase in gross fixed capital formation. “Korea, which has been relatively less affected by the Fed’s quantitative easing policy and other external uncertainties, is one of the safe havens for global investors as of now,” it said.
The agency added that the Korean economy would be able to get another breakthrough, in the service sector in particular, if the government’s three-year plan for economic reform turns out to be successful. “Korea’s per-capita GDP based on purchasing power parity is likely to surpass those of Japan and France in 2018 assuming a successful economic structural reform,” it continued.
Still, Moody’s did not forget to mention the excessive debts on the part of public enterprises and households and the temporary shrinkage in domestic demand as two of the short-term factors inhibiting further growth. It also pointed out that the problems associated with the population structure could limit the country’s potential growth rate in the longer term although Korea is expected to tackle such problems effectively and efficiently. “The Park Geun-hye administration’s efforts for the reduction of liabilities and structural reform will be the key, along with a recovery of the global economy, in Korea narrowing its gap with more advanced countries,” it explained.
In the meantime, Moody’s has recently assigned an Aa3 rating for Korea with a stable credit rating outlook.