Global credit rating agency Fitch Ratings reaffirmed South Korea’ sovereign credit rating at AA- with a stable outlook, said the Korean Ministry of Strategy and Finance on Thursday.
It is the fifth straight year for the credit rating agency to keep Korea’s sovereign debt rating at AA-, the fourth-highest in its rating tier or one notch lower compared to its peer rating agencies Moody’s and Standard & Poor’s (S&P).
The latest affirmation came amid escalating regional tensions due to North Korea’s nuclear and missile tests despite widespread condemnation. Market watchers expected Fitch to up its rating after Moody’s upgrade of Korea’s credit rating to Aa2 in December 2015 and S&P to AA in August last year. But the credit agency may have kept the rating at the same level as before due to the recent geopolitical issues.
The agency pointed out the escalating tensions in the region weighing on ratings but also stated that “strains on the Korean peninsula are not new, and have followed a familiar pattern of rise-and-fall cycles in the past.”
Fitch also assessed the potential impact of reunification of the two Koreas. “Reunification would not be only a cost for the sovereign but would also provide opportunities in terms of political stability and relatively cheap labor during a transition period of integration for manufacturing export-led growth,” it stated.
It predicted the Korean economy to keep up the strong growth pace with GDP growth potential of 2.7 percent for 2017, 2.8 percent for 2018 and 2.6 percent for 2019. The agency expected domestic demand “to support growth after a long period of political uncertainty ended with the election of President Moon Jae-in in May 2017.”
The main Korean composite stock price index ended Thursday up 16.60 points at 2,474.76. The won closed at 1,133.2 won against the U.S. dollar, up 2.0 won. The five-year government bond yield fell 2.4 basis points to 2.111 and the three-year government bond yield 2.9 basis points to 1.900.
By Cho Si-young
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Source: Pulse by Maeil Business News Korea (Oct. 12, 2017)