Korea should keep close eye on China: Moody’s

By Korea Herald

‘China’s economic slowdown is a bigger threat than U.S. Fed’s tapering’

  • Published : Feb 20, 2014 - 19:52
  • Updated : Feb 20, 2014 - 19:52

Concerns are rising over the U.S. Federal Reserve’s tapering decision, a move that has triggered much volatility in Asian markets including Korea. But the “biggest risk” for Korea this year will be the slowdown of China’s growth, a senior official from global rating agency Moody’s said.

“The biggest risk, perhaps, that Korea and other Asian countries is facing is China’s growth slowdown,” said Thomas Byrne, senior vice president of Moody’s Investors Service, during a press meeting in Seoul on Thursday.

Thomas Byrne

Byrne said Korea’s current-account surplus and foreign exchange reserves can protect it from the potential risks of the Fed’s slowdown in quantitative easing. But the slowing growth in the world’s second-largest economy was seen to have a more serious and direct impact on Korea and other export-driven economies.

“If China’s (economic growth) slows more than what consensus thinks, that is, below 7.5 percent, I think it will have negative consequences for both Korea’s economic fundamentals and market sentiment,” said Byrne, who is based in Singapore.

In particular, he pointed out that China’s purchasing managers’ index, a key economic indicator, should be watched closely.

A low PMI indicates weaker local and foreign demand. In January, the index plunged to 50.5 ― its lowest point in six months.

“If China announces another PMI that is lower than 50, it will have a more immediate impact on Korea than the Fed’s announcing of another step in tapering,” he told The Korea Herald.

Despite the concerns, however, the rating agency will retain its rating of Korea’s economy as “stable” as the country is well prepared for financial volatility, the official said.

Korea’s government-bond rating was raised to Aa3, from A1 in August 2012, and the key drivers of the gain were strong fiscal fundamentals, reduced external vulnerability and a competitive export sector.

The rating agency, however, cited a sharp rise in public-sector debt as well as high household debt as among key “contingent liabilities” that could lead to a rating downgrade.

By Oh Kyu-wook (