SEOUL– Global credit appraiser Fitch Ratings said Wednesday it has reaffirmed South Korea’s sovereign rating at “AA-” with a stable outlook.

Fitch’s rating for South Korea has been AA-, the fourth-highest level on the agency’s table, since September 2012.

Fitch said Korea’s robust external finances, resilient macroeconomic performance and a dynamic export sector are balanced against geopolitical risks from North Korea and structural challenges from an aging population.
The agency forecast the South Korean economy to grow 2.6 percent this year and 1.9 percent in 2023. It said a global slowdown and a switch to consumption on services will likely weigh on exports and facility investment.

On inflation, the agency said the growth of Korea’s consumer prices is likely to reach 5 percent by year-end and slow to 1.5 percent by the end of 2023.

Consumer prices, a key gauge of inflation, jumped 5.7 percent on-year last month, slowing from a 6.3 percent surge in July, as global oil prices receded.

The Bank of Korea (BOK) forecast Asia’s fourth-largest economy to grow 2.6 percent and its 2022 inflation outlook stood at 5.2 percent.

Fitch expected the BOK to raise its policy rate by another 25 basis points to 2.75 percent this year, despite market expectations for another 50 basis point increase.

Last month, the BOK raised the key interest rate by 0.25 percentage point to 2.5 percent. The decision followed its first-ever “big-step” rate hike of 50 basis points in July and marked the seventh rate increase since August last year.

Fitch also said it believes “Korea’s external finance position provides a sufficient buffer to manage the current bout of external volatility.”

Despite a widening trade deficit and a fall in the country’s foreign reserves, the rating agency judged Korea’s “underlying external finance strengths persist,” citing the nation’s strong net external creditor position and its history of current account surpluses.

Touching on fiscal soundness, Fitch said South Korea’s fiscal space appears “sufficient” to accommodate its rising government debt in the near term, in light of the government’s latest fiscal consolidation plans.

South Korea plans to implement a belt-tightening policy in a shift from years of an expansionary fiscal policy stance in an effort to improve fiscal health compromised by the growing national debt. It plans to cut government spending for the first time in 13 years next year.

Source: Yonhap News Agency