The decision came in a balanced evaluation of Seoul’s robust external finances and strong macroeconomic capacities, as well as its challenging factors such as its peninsular volatility, rapid population aging and slowing productivity.
“Geopolitical risk continues to weigh on the rating, even though tensions with North Korea have eased following the recent summits,” the company stated, while acknowledging that the latest events could help break the decadeslong conflict pattern on the Korean Peninsula.
“Reunification does not appear to be on the cards for the foreseeable future, but is it a long-term possibility and could have large implications for the sovereign’s balance sheet.”
But complications will persist as the related parties are still working on the details of denuclearization and other stakeholders such as China and Japan are likely to intervene in the process, it added.
Steering Asia’s fourth-largest economy were its steady growth performance -- the gross national product standing at 3 percent as of last year and forecast in a similar range for this year -- and its resilience to external fluctuations, according to the agency.
While approving of the Moon Jae-in administration’s income-led growth model as a way to strengthen domestic demand, it also pointed out that external demand from key trading partner states China and Japan will cool. Rising oil prices are also likely to act as a dampener to household real income and corporate profit margins, it added.
The escalating threat of a trade war between Washington and Beijing also poses a downside risk to Seoul’s export-dependent economy, the agency warned.
In terms of governance standards, Korea is yet to make further improvements to increase transparency and separate the public and corporate sectors.
“The country’s credit profile could be improved, following the results of ongoing reform measures,” the release said.
Moody’s Investors Service, another one of the global top three credit rating agency along with Standard & Poor’s, earlier maintained Korea’s rating at Aa2, the third-highest in its classification system.
By Bae Hyun-jung (firstname.lastname@example.org)