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(2nd LD) Fitch keeps S. Korea's credit rating at 'AA-,' outlook stable

Economy 17:11 October 07, 2020

(ATTN: UPDATES with comments from presidential office at bottom)

SEOUL, Oct. 7 (Yonhap) -- Global credit appraiser Fitch Ratings said Wednesday it has maintained South Korea's credit rating at "AA-" with a stable outlook.

Fitch's rating for South Korea has been AA-, the fourth-highest level of the agency's sovereign ratings, since 2012.

"Korea's rating balances robust external finances, steady macroeconomic performance and sufficient fiscal headroom going into the coronavirus pandemic against geopolitical risks related to North Korea and medium-term structural challenges from ageing demographics and moderate productivity growth," Fitch said in a statement posted on its website.

The rating agency said the COVID-19 pandemic has weighed on South Korea's economic growth and public finances, but its response to the outbreak has helped limit the deterioration of the economic situation compared with other advanced economies and "AA" peers.

The South Korean economy is expected to contract by a modest 1.1 percent this year, the agency said. Its forecast is not as sharp as the Bank of Korea's projection of a 1.3 percent retreat.

Fitch Ratings said the country's exports will keep a continued recovery, but downside risks to Asia's fourth-largest economy still linger due to the pandemic.

"Risks to the growth outlook remain tilted to the downside because of the considerable uncertainty around the spread of the virus globally and domestically in Korea," Fitch said.

The agency said the country's fiscal deficit is forecast to widen to 4.4 percent of the gross domestic product (GDP), up from a 0.6 percent shortfall in 2019, due to the country's aggressive fiscal spending.

It also forecast South Korea's government debt-to-GDP ratio to rise to 44.4 percent this year, up from 37.7 percent last year. In 2022, the ratio is likely to reach 51.1 percent.

"The higher debt burden presents some risks to Korea's public finances, given spending pressures from an ageing population," Fitch added.

Lee Ho-seung, senior secretary for economic affairs at Cheong Wa Dae, assessed Fitch's steady rating on South Korea as a "reconfirmation of South Korea's external credit worthiness."

He also said South Korea's economy is expected to see the highest growth rate among members of the Organization for Economic Cooperation and Development (OECD) for 2020, as well as 2020 and 2021 combined.

"South Korea's aggregate growth rate for this year and the following year is projected to reach 2.1 percent, the highest among OECD nations," said Lee, adding that Turkey, the United States and Germany are expected to follow with growth of 1 percent, 0.2 percent and minus 0.8 percent, respectively.

(2nd LD) Fitch keeps S. Korea's credit rating at 'AA-,' outlook stable - 1

sooyeon@yna.co.kr
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