Korea's slow growth risks credit downgrade: S&P
"The Korean economy has been slowing down for various reasons," Kim Eng Tan, managing director of Asia-Pacific sovereign ratings at S&P Global Ratings, said at a press conference held in central Seoul, Wednesday, discussing growth deceleration and rising household debt.
The press conference took place ahead of a seminar jointly held by the credit appraiser and the Korea Center for International Finance on the same day, under the title "Credit Could Cost More in a Less-Trade World."
At the conference, Kim Eng Tan stressed that growth may be the most important economic indicator to watch for Korea.
"There are reasons to be less optimistic about Korea's growth rate, which may have an impact on the ratings at some point in the future because we now count the country's relatively strong growth as a positive factor for the government fiscals," he said.
Korea has been grappling with sluggish growth, with major institutions such as the Bank of Korea and the Korea Development Institute forecasting gross domestic product to grow just 0.8 percent this year.
Kim Eng Tan further suggested that the country's export-dependent economy may suffer from more changes in the global trading regime, sparked by the US administration's imposition of tariffs.
'In the past, the World Trade Organization set the trading regime, where no matter the size of the economy, countries had to follow the same kinds of rules, more or less. If a country deviates from the rules, it faces sanctions or pushbacks,' he said.
'But what the US has done makes every other big economy decide that it is in their interest to use their economic size and market to enforce trading rules more friendly to themselves. This is not a great development for all exporters, particularly for a relatively medium-sized economy like Korea, with a medium-sized domestic market.'
Yet Kim Eng Tan further highlighted that Korea has been maintaining a relatively strong economic growth despite its aging demographics.
"Despite the slow and negative impact of aging, something in Korea has managed to offset that and still provide very strong outcomes in areas that aging can negatively affect. That is why the rating is so high,' he said.
S&P Global Ratings has kept Korea's long-term sovereign credit rating at the third-highest notch on the company's table of "AA" since August 2016.
'Of course, if the factors go away or aging becomes even more pronounced than today, and the negative impacts of aging show more clearly, we may have to adjust the rate. But at the moment, I do not see that happening.'
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