Fitch affirms Korea’s credit strength despite risks

Global ratings agency Fitch on Friday reaffirmed South Korea’s long-term sovereign credit rating at “AA-” with a stable outlook, citing the country’s strong external finances and resilient export sector.

The agency cited the country’s robust external finances, dynamic export sector and stable macroeconomic performance as key strengths, while flagging geopolitical risks related to North Korea, an aging population and vulnerability to external shocks as downsides.

Korea has retained the "AA-" rating since September 2012. Though there were concerns of a rating downgrade earlier last year following the political volatility caused by former President Yoon Suk Yeol’s short-lived martial law declaration, the country has maintained its rating.

Fitch forecasts Korea’s gross domestic product will expand by 2 percent this year, recovering from 1 percent growth last year, driven mainly by strong private and government consumption.

“There could be upside to our growth projection for 2026 if global artificial intelligence demand continues," it added, citing that semiconductor exports account for 24 percent of the country's total exports. However, it underlined that tariff risks remain, as a deal with the US has yet to be ratified by the National Assembly.

Fitch revised down its estimate of Korea's potential GDP growth rate to 1.9 percent from 2.1 percent, due to declines in the working-age population.

"The government is ramping up efforts to boost productivity through large investments in AI and high-tech industries, which it hopes will offset rising demographic pressures on growth,” it added.

The Finance Ministry said the latest rating announcement expresses Fitch's "unwavering confidence" in the Korean economy.

“We will continue to make proactive efforts to maintain Korea’s solid external credit rating, keeping up close communication with global credit rating agencies,” the Finance Ministry said.

S&P Global Ratings has kept Korea at its third-highest notch of “AA,” while Moody’s has maintained the country at “Aa2,” also the third-highest level on its scale. Both assigned a stable outlook.