"COVID-19 Slump Temporary... Rebound Expected Next Year" S&P Maintains South Korea Credit Rating (Comprehensive)

S&P "South Korea's Sovereign Credit Rating Maintains Stability"
Growth Rate -1.5% This Year, Expected Rebound of 5% Next Year
Government "Reaffirms South Korea's External Economic Credibility"

On the 21st, when the KOSPI index started lower due to the impact of the international oil price plunge, dealers were working in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporter Choi Dae-yeol] The international credit rating agency Standard & Poor's (S&P) has maintained South Korea's sovereign credit rating at the same level as before. According to the data released by S&P on the 21st, South Korea's long-term sovereign credit rating was kept at 'AA', and the short-term sovereign credit rating remained at 'A-1+', unchanged from previous ratings. The credit rating outlook was also assessed as stable, maintaining the existing level.

S&P forecasted that South Korea's growth rate would record -1.5% this year due to the impact of the novel coronavirus disease (COVID-19), marking the first negative growth since 1998. However, it is expected to rebound starting next year. The per capita gross domestic product (GDP) is estimated to slightly exceed $38,000 in 2023, up from $30,000 this year. The trend of per capita real GDP growth rate is expected to be around 2.3%. The fiscal deficit is anticipated to widen this year due to economic stimulus measures.

Regarding COVID-19, South Korea is considered one of the countries in Asia that suffered significant damage, causing a "temporary economic recession." However, the economic fundamentals are not expected to be severely damaged by this incident. As the number of patients decreases, economic activities are expected to recover. S&P explained, "The current shock is only temporary, and consumption suppressed during the COVID-19 pandemic will be released. With government stimulus measures, GDP growth is expected to rebound to 5% next year," adding, "Investment should also recover as global trade conditions normalize."

The "North Korea variable" is also expected to be limited. S&P stated, "Geopolitical risks on the Korean Peninsula will not escalate to the extent of undermining the economic foundation," and added, "If geopolitical tensions become severe enough to seriously affect South Korea's economy, we will consider lowering the rating."

The government judged this announcement as a positive evaluation of South Korea's economy in the international market. The Ministry of Economy and Finance said, "S&P's decision reconfirmed South Korea's external credibility despite domestic and international uncertainties such as economic slowdown due to COVID-19," and added, "We will increase communication with rating agencies regarding South Korea's economic status and major issues to enhance external credibility."

According to the Ministry of Economy and Finance, S&P raised South Korea's sovereign credit rating from 'AA-' to 'AA' in August 2016 and has maintained it since then. Another rating agency, Moody's, has maintained the 'Aa2' rating with a stable outlook since December 2015, and Fitch has maintained 'AA-' with a stable outlook since September 2012. According to the sovereign credit ratings by the three major agencies, South Korea is rated similarly to the United Kingdom, France, and Abu Dhabi.

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