S. Korean economy to remain resilient despite external challenges: Fitch

By Kang Yoon-seung

SEOUL, Nov. 11 (Yonhap) -- The South Korean economy is anticipated to remain resilient despite growing external risks, including inflation and high borrowing costs, on the back of its external finance strengths, a senior analyst at Fitch Ratings said Friday.

"Challenges to Korea's economic outlook are mounting as a result of slowing global demand, high inflation and rising interest rates," Jeremy Zook, a director of Asia-Pacific Sovereigns at Fitch, said during a press conference, adding there are "downside risks" to its estimated growth of 1.9 percent in 2023.

"The downturn in global demand and the semiconductor cycle is clearly under way as illustrated by the sharp fall in exports in October," Zook added.

Zook, however, pointed out South Korea nevertheless maintains "sufficient external and fiscal buffers" to "navigate the near-term challenges," considering its history of strong current account surpluses and large foreign exchange reserves.

"Korea's external finance position provides a sufficient buffer to manage the current bout of external volatility," Zook said.

On the country's key rates, the director said the central bank is expected to raise its policy rate by another 50 basis points in the upcoming rate-setting meeting this month.

Last month, the Bank of Korea raised its key policy rate by 0.5 percentage point to 3 percent to tackle inflation. It marked the second-ever big-step increase and the eighth rise in borrowing costs since August last year amid the inflation pressure.

"Inflation appears to have peaked, despite the recent uptick in October, and we forecast it to decline 5 percent by the end of the year," Zook added.

South Korea's on-year growth in consumer prices, a key gauge of inflation, rose 5.7 percent last month from a year earlier, picking up speed from a 5.6 percent advance in September.

"However, there are upsides to this forecast if inflation proves stickier than we expect or if market expectations around Fed policy sustain pressure on the exchange rate," he added.

On the country's housing market, Zook said the household debt is still at a "manageable" level despite higher borrowing costs.

"In the absence of a more severe economic shock, this is likely to result in weaker household consumption rather than financial stability risks," he added.

colin@yna.co.kr
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