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(LEAD) Fitch maintains 'AA-' sovereign rating for S. Korea

Economy 15:10 January 24, 2019

(ATTN: UPDATES with more details)

SEJONG, Jan. 24 (Yonhap) -- Global credit appraiser Fitch Ratings on Thursday reaffirmed its "AA-" standing for South Korea with a stable outlook as the Bank of Korea cut the country's growth forecast to 2.6 percent for 2019.

"Korea's AA- rating reflects robust external finances and a solid macroeconomic performance compared with peers, as well as evolving geopolitical risk from the relationship with North Korea, and longer-run challenges of rapid population ageing and low productivity," Fitch said in a report posted on its website.

Fitch has maintained the same grade for Asia's fourth-largest economy since it upgraded it to the fourth-highest level on its sovereign ratings table in 2012.

The agency said South Korea's macroeconomic performance remains strong relative to many peers, although forecasting growth to further decelerate to 2.5 percent for 2019 and 2020 due to weak private investment and export growth.

The outlook is bleaker than the Bank of Korea's forecast for the national economy.

Earlier in the day, the central bank revised down South Korea's growth outlook to 2.6 percent from its previous estimate of 2.7 percent in October last year. The central bank said the South Korean economy is expected to expand 2.6 percent in 2020.

Fitch said the direct effect of trade tensions between the United States and China would be limited, but indirect fallout, including slowing global growth, could be significant for a country where exports account for about half of its gross domestic product.

The rating agency said geopolitical risks continue to weigh on South Korea's rating and warned that the diplomatic process for North Korea's denuclearization continues to be prone to breakdown.

U.S. President Donald Trump has said he will meet with North Korean leader Kim Jong-un in a second summit in late February, without elaborating on the exact date and venue.

Kim has expressed "great satisfaction" after receiving a letter from Trump and spoke highly of Trump's "determination and will" to resolve issues between the two countries, according to North Korea's official Korean Central News Agency.

The two met in Singapore last June, but no significant progress has since been made.

Fitch said South Korea's strong external finances are supported by a solid net external creditor position and make Korea more resilient than many of its peers to global market jitters.

Fitch also said it expects another policy rate hike in South Korea in 2019, given the continued rise in household debt.

South Korea's household credit, which surpassed 1,500 trillion won (US$1.33 trillion) as of the end of September, has been on a record-breaking increase for nearly four years thanks to government-led economic growth boosting measures and accommodative monetary policy.

On Thursday, the BOK held its policy rate steady at 1.75 percent, following a quarter percentage-point hike made in November.

(LEAD) Fitch maintains 'AA-' sovereign rating for S. Korea - 1


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