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Weak growth, trade tensions to weigh down on Korean economy in 2020: Moody’s

Credit agency maintains 2.1% outlook for next year

South Korea’s economy and its key businesses will continue to face challenges next year due to the weak global economic growth pace and persisting trade tensions, global credit ratings agency Moody’s said Tuesday.

“Our outlook (for Korea in 2020) is negative,” Chris Park, associate managing director of corporate finance at the agency, said in a press briefing.

“Many export-dependent companies here had their profitability decrease in 2019 but continued to maintain or expand big investments, which affected their financial stability.”

Though some of the industries may see some improvement in 2020, the range is likely to be limited, he added.

Of the 24 Korean companies rated by Moody’s, 14 were deemed “negative,” while none of the 15 key industry sectors were classified as “positive” in terms of credit rating for next year.

Upon impact from ongoing trade tensions, the country’s technology and chemical sectors will be most vulnerable throughout next year, according to analyst Sean Hwang.

Global credit ratings agency Moody’s holds a press briefing at Conrad Seoul on Tuesday. (Bae Hyun-jung/The Korea Herald)
Global credit ratings agency Moody’s holds a press briefing at Conrad Seoul on Tuesday. (Bae Hyun-jung/The Korea Herald)

As for the growth pace of Asia’s fourth-largest economy, Moody’s suggested 2.1 percent for next year, maintaining status quo from its earlier outlook in September. The given figure was the same as that by Morgan Stanley and 0.2 percentage point lower than the latest updates by the government-affiliated Korea Development Institute.

“Both developed economies and emerging economies have seen their trade volume decrease for the first time since 2013,” said Christian de Guzman, senior vice president of the sovereign risk group.

“Despite the monetary easing actions, the growth pace will slow down in most major countries, and this will certainly impact Korea which is highly reliant on trade and holds an important position in the global value chain.”

Moody's, however, decided to maintain its credit rating at the current “Aa” with a stable outlook, citing strong fiscal capacities.

“Institutional strength, tied to domestic political risks, remains very strong in Korea,” said Guzman.

When it comes to the sovereign debt level, which is projected to climb to 42 percent of its gross domestic product amid expanded fiscal spending, the senior official explained that the figure is still in line with other peer economies.

Also, the downward revision of Seoul’s growth outlook is partly attributable to China’s slowed growth, Guzman added, when asked about the impact of external factors.

“China is projected to expand 5.8 percent on-year in 2020, which is a slowdown from this year’s estimated 6.2 percent,” he said.

“(Such slowdown) is not entirely due to the US-China trade tensions but also the structural factors in China, such as its demographic changes.”

Seoul’s tensed relation with Tokyo, on the other hand, has so far had limited impact on the country’s outlook and rating.

“Korea has a relatively high susceptibility to event risks, mostly geopolitical ones, but there is limited evidence that the (Korea-Japan) tension had any disruptive effect,” Guzman said.

While recognizing the contraction in the bilateral trade volume, the official attributed it to the global trade trend in general, instead of the regional tension.

“Until we see more tangible evidence, it is unlikely that the (Japan) factor will impact (Korea’s) sovereign rating.”

By Bae Hyun-jung (