[Exclusive] S&P "Korean credit rating stable for at least 3 years"…'AA' likely next year

The international credit rating agency Standard & Poor's (S&P) has increased the likelihood that Korea's sovereign credit rating will be maintained at 'AA' next year. S&P said, "The Korean economy is growing relatively quickly," and "this supports a long-term 'AA' sovereign credit rating."

According to S&P's regular sovereign credit rating update report obtained by The Korea Economic Daily on the 6th, S&P said, "A stable rating outlook reflects the expectation that Korea will maintain a higher average growth rate than most other high-income countries for at least 3~5 years," and "general government deficits are also expected to remain at relatively stable levels over the next 3~4 years."

The report was a non-public document issued on the 30th of last month and is the first analysis released after S&P announced in April that it would maintain Korea's rating at 'AA.'

S&P explained, "Korea's credible monetary policy framework is a credit strength," and "an actively traded won and a solid external balance also support the credit rating." Regarding the expansionary fiscal stance of the Lee Jae-myung administration, it said, "There is a higher likelihood that future government deficits will be larger than expected," but added, "we do not view these changes as likely to weaken the credit rating."

It continued, "The government tried to curb the expansion of the fiscal deficit by reducing other expenditures and raising some taxes," and "however, it suspended plans to raise the capital gains tax due to investor backlash." This is interpreted as analyzing the government's recent withdrawal of the plan to strengthen the capital gains tax major shareholder criteria.

Regarding domestic companies, it said, "They hold a leading position in the information and communications (IT) sector and are very competitive in other industries such as shipbuilding," and "as some Chinese firms are being excluded from the U.S. market due to U.S.-China tensions, Korean companies are receiving spillover benefits."

However, S&P warned, "High tariffs and a global economic slowdown could weaken next year's tax revenue growth," and "Korea's high household debt could also constrain the flexibility of monetary policy."

In the report, S&P forecast Korea's real gross domestic product (GDP) growth rate this year at 0.7%. Next year's growth forecast is 1.9%, a 0.1% point downward revision from April. This is 0.1% to 0.3% percentage points higher than the forecasts of the Ministry of Economy and Finance (1.8%) and the Bank of Korea (1.6%), and aligns with recent forecasts by global investment banks (IBs). Per capita GDP is analyzed to be close to $44,000 in 2028 from $36,200 this year.

Nam Jeong-min/Lee Kwang-sik reporters peux@hankyung.com