Published : Oct. 21, 2016 - 16:01
Expectations that Fitch Ratings would upgrade South Korea’s sovereign credit rating have been dampened as the agency decided to keep the country’s level at “AA-” for four consecutive years.
Fitch Ratings announced Thursday night it kept South Korea’s sovereign credit rating at the current level, due to the remaining long-term challenges of the fourth-largest economy in Asia.
Meanwhile, Standard & Poor’s and Moody’s made upgrades in the country’s ratings in August and last December, respectively.
Fitch’s “AA-” level for Korea is one notch lower than the levels given by S&P and Moody’s.
Although the agency assessed the country’s economic performance positively, it also considered challenges such as aging and decreasing productivity.
“The Korean economy is challenged in the longer run by a rapidly ageing population, as evidenced by the lowest fertility rate (1.24 percent for 2015) among some 40 countries tracked by the OECD (Organization for Economic Cooperation and Development), which had an average of 1.68 percent,” the agency said in a statement.
Fitch forecast gross domestic product growth to be broadly stable in the coming years: at 2.8 percent in 2016 and 2.9 percent in 2017 and 2.8 percent in 2018. The growth path is slightly below the 2011-2015 average of 3 percent, the agency said, partly reflecting the gradual weakening of GDP growth in China.
The agency’s next year growth forecast for Korea is 0.1 percentage point lower than the Korean government’s 3.0 percent.
“The ongoing corporate restructuring in a number of sectors, including shipbuilding and shipping, is likely to weigh somewhat on GDP growth in the short run,” the statement said.
High household debt will dampen households’ propensity to consume and increase the country’s vulnerabilities to shocks, the agency added.
Korea could expect an upgrade in its credit rating level, if the country successfully addresses the debt problem and completes the ongoing restructuring process, it said.
On the Fitch list, Korea remains one notch higher than China and two notches higher than Japan, making it the most credible economy in East Asia.
By Song Su-hyun (song@heraldcorp.com)