The Korea Herald


Fitch keeps S. Korea's 'AA-' credit rating, eyes 2.1% growth

By Yonhap

Published : March 6, 2024 - 20:12

    • Link copied

Vessels carrying containers are lined up at Sinseondae container terminal in Busan Port, Feb. 21. (Newsis) Vessels carrying containers are lined up at Sinseondae container terminal in Busan Port, Feb. 21. (Newsis)

Global credit appraiser Fitch Ratings said Wednesday it has reaffirmed South Korea's sovereign rating at "AA-" with a stable outlook.

It is the fourth-highest level on the agency's sovereign ratings table, and Fitch has maintained AA- for South Korea since September 2012 when it upgraded the rating by one notch from A+.

"(South) Korea's rating balances robust external finances, resilient macroeconomic performance and a dynamic export sector against geopolitical risks related to North Korea, lagging governance indicators relative to 'AA' category peers and structural challenges from an ageing population," the agency said in its report issued in the day.

Fitch expected the South Korean economy to grow 2.1 percent this year, accelerating from last year's 1.3 percent gain, on the back of rising exports.

The forecast was on a par with the growth outlook by the Bank of Korea (BOK). The Korean government forecast 2.2 percent growth, and the International Monetary Fund presented a 2.3 percent expansion.

"The semiconductor sector is leading the export rebound, although the recovery is becoming broader based. Still, we expect the recovery in exports to be gradual as global growth remains tepid," the report read.

But the agency said construction will drag on growth despite positive momentum in overall facility investment, and household demand is forecast to remain subdued due to high interest rates and inflation.

Exports, a key economic growth engine for South Korea, rose for the fifth consecutive month in February after a yearlong downturn, driven by solid global demand for semiconductors.

But policy makers here have pointed to sagging consumption and investment and the pace of economic recovery has differed among sectors, vowing efforts to better support the people's livelihoods.

Inflationary pressure has been trending down but prices have eased at a slower-than-expected pace due to the high prices of fruit, farm produce and energy.

"We expect the BOK to begin cutting rates in the second half of 2024 to 3.0% by year-end, easing financial conditions," Fitch said.

The central bank has kept its policy rate at 3.5 percent since January 2023, maintaining slightly tight monetary settings.

Speaking of geopolitical risks, Fitch said tensions with North Korea remained heightened amid the prolonged impasse in dialogue to denuclearize the regime.

"Diplomatic dialogue has been minimal in the past few years and prospects for restarting denuclearization discussions appear limited," the report read. "Growing ties between North Korea and Russia could further complicate efforts for diplomatic re-engagement."

North Korea has continued missile tests and stepped up its provocative actions and rhetoric. North Korean Leader Kim Jong-un in January dubbed South Korea as its "primary foe."