Weak exports could hinder Korea’s long-term growth: Moody’s

Weak exports could hinder Korea’s long-term growth: Moody’s

Global rating agency Moody’s said Wednesday that slowing export momentum and consumer confidence could hinder South Korea’s long-term economic growth.

The agency, however, kept the country’s sovereign credit rating at Aa3, citing strong fiscal conditions especially for private nonfinancial companies.

“The robust earnings that many Korean private companies have shown in 2015 will continue into 2016,” said Moody’s Investors Service associate managing director Chris Park in an economic forecast briefing in Seoul.

“This situation, together with low capital expenditures, will lead to stable or modest improvements in their financial leverage.”

The agency has retained the Aa3 credit rating for Korea, the fourth-highest level since August 2012.

“The positive outlook is attributable to ongoing regulatory and market reforms, which aim at ensuring financial stability, strengthening competitiveness and addressing external vulnerabilities,” said Moody’s vice president Steffen Dyck.

The agency noted that low commodity prices globally will continue to support the earnings of a majority of rated companies in 2016, mitigating soft economic growth both domestically and globally.

It also pointed out that most companies have demonstrated adequate financial flexibility and Korea’s all-time low interest rates will maintain a favorable funding environment.

Korea’s central Bank once again decided last week to freeze its benchmark interest rate at a record low of 1.5 percent for five consecutive months.

Given the existing conditions, most companies will maintain their current ratings through 2016, the agency said.

The steel and retail sectors, however, could continue to experience difficulties, Moody’s warned.

“Diminished export momentum and recent shocks to consumer confidence, as well as rising household debt and demographics, pose challenges for the country’s short-term and long-term growth perspectives,” Dyck said.

Reflecting such concerns, the BOK cut the growth outlook for next year to 3.2 percent from 3.3 percent, citing weak domestic demands and unfavorable external factors.

Also, a key risk for most Korean companies is the significant slowdown in China’s gross domestic product growth, which could have a material adverse effect on the credit quality of companies in refining, chemical, steel and auto sectors, according to the senior analyst.

As for state-run companies, Moody’s said that the Korean government’s reinforced oversight will help them maintain stable financial profiles.

Moody’s rating portfolio of nonfinancial corporates in Korea currently comprises of 22 private companies and 16 state-run companies and their subsidiaries, according to officials.


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