International credit rating agency Moody's said on the 12th that it kept Korea's sovereign credit rating at the existing "Aa2" (stable). Aa2 is the third-highest rating in Moody's scale, after Aaa and Aa1.
Moody's explained that it decided to maintain the rating after comprehensively considering "Korea's very high level of economic diversification and competitiveness, and institutional capacity to manage major challenges."
Moody's said Korea's economy grew only 1% year over year last year, but predicted the situation will improve this year. Moody's forecast, "Korea's economy will post 1.8% growth this year on increased semiconductor exports driven by a global artificial intelligence (AI) boom and a recovery in facility investment."
Over the long term, it projected Korea's growth rate will stabilize around 2%, a level similar to other advanced economies. Despite a shrinking labor force due to low birthrates and an aging population, Moody's expected Korea can raise productivity through AI adoption in the corporations and public institutional sector, capital market and corporate governance reforms, and efforts for balanced regional development.
Moody's also projected that Korea will further support growth with a strategy to diversify export items through the defense industry and shipbuilding, where it has significant competitiveness in addition to semiconductors.
However, Moody's saw government debt expanding to more than 60% of gross domestic product (GDP) by 2030. It cited mandatory expenditure tied to aging, such as pensions and health care, and defense spending as drivers of the rise in national debt.
It also assessed that the liabilities of state-owned enterprises will negatively affect fiscal soundness. Moody's said, "In 2024, the total liabilities of nonfinancial public institutional sector corporations stood at more than 17% of GDP, up from 15% in 2021," adding, "Nonfinancial public institutional sector liabilities appear likely to further pressure overall fiscal soundness."
As downside factors that could affect the future sovereign credit rating, it pointed to geopolitical risks and domestic political polarization. Moody's assessed, "In addition to continued tensions with North Korea, the scope has recently widened to trade and investment risks, including domestic political polarization, U.S.–Korea tariff negotiations, and U.S.–China technological competition." It added, "The role of diplomacy and institutional policymaking has become particularly important in balancing relationships among various economic actors."