Weak global recovery to weigh on S. Korean economy in 2020: Moody's

By Byun Duk-kun

SEOUL, Nov. 19 (Yonhap) -- The South Korean economy, along with many of its leading corporations, will continue to face headwinds next year due to weak economic growth and trade tensions, global rating agency Moody's Investors Service said Tuesday.

"Our outlook is negative. The overall profitability of export-dependent companies deteriorated in 2019 due to a global economic slowdown, but their financial stability weakened as they continue to maintain sizable investment," said Chris Park, associate managing director of corporate finance group at Moody's.

"There is a chance for improvement in 2020, but we believe the rate of improvement will likely be limited," he said in a press conference held shortly before an investor seminar at a Seoul hotel.

Of 24 South Korean companies rated by Moody's, 14 now have negative outlooks, he added.

This "reflects reduced financial buffers amid weak economic conditions, large committed investment or both," Moody's said in a press release.

South Korea's exports have dropped for 11 consecutive months since December, largely due to a slump in the global semiconductor market and the prolonged trade dispute between the United States and China, the world's largest importers of South Korean exports.

Park said the downturn in global trade will continue to negatively impact local industries, especially those that are in a down cycle, such as the semiconductor and chemical sectors.

"Trade disputes are expected to limit corporate profitability, and we expect the tech and chemical industries to be most affected," he said.

Despite such a negative outlook for South Korea's companies, and apparently its economy as well, Moody's will maintain its credit rating for the country at the current "Aa" with a stable outlook.

The global rating agency earlier slashed its growth outlook for South Korea in 2020 to 2.1 percent from the previous 2.2 percent.

Christian de Guzman, senior vice president of the Sovereign Risk Group at Moody's, said the country's economic, institutional and fiscal strength continued to remain very strong.

"Institutional strength, which is tied to domestic political risks, by large remains very strong in Korea," he said.

He noted the country's general government debt was expected to increase to around 42 percent of its gross domestic product on a "large fiscal expansion proposed by the government."

It will still be in line with the average debt ratio of other international peers with "Aa" sovereign ratings, Christian said.

Guzman said South Korea's own trade tension with Japan may have introduced some level of new downside risks for the country but that it may not have too great an impact on the whole economy.

"There is little evidence showing disruptive effects of these disputes on the Korean economy," he told reporters when asked.

"When it comes to bilateral trade disputes, global trends are actually more important."

On a similar note, Guzman said the down revision in South Korea's growth outlook may partly be attributed to a projected slowdown in China's economy, which he said is estimated to expand 5.8 percent on-year in 2020, slowing from this year's estimated 6.2 percent expansion.

Also, the slowing growth of China is "not primarily attributable to the U.S.-China trade tensions but also structural factors in China," he said. "And the sectors and countries that are exposed to China may face downward spillover risks."

bdk@yna.co.kr
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