Moody's, one of the three major global credit rating agencies, said on the 18th that it sharply raised its forecast for Korea's economic growth this year to 3.5% from 2.5%. That is higher than the Korean government (3%), the International Monetary Fund (IMF, 2.6%), the Organisation for Economic Co-operation and Development (OECD, 2.6%), and the average of eight major investment banks (3.2%).
Moody's lifted its Korea growth forecast from 1.8% in February to 2.5% in May, and this time to 3.5%. Moody's said, "In the first half of this year, semiconductor exports showed very strong growth," adding, "The semiconductor cycle will continue at least until the middle of next year." It added, "That is because demand for semiconductor products is continuing and there are limited corporations that can replace Korea's large corporations."
Moody's also saw that the government's mega projects will help growth and balanced regional development. In addition, Moody's expected next year's growth rate to come in at 2.6%. That too is higher than the IMF (2.5%), the OECD (1.9%), and the Bank of Korea (1.9%).
Moody's expected that although government fiscal expenditure is expanding, the debt-to-gross domestic product (GDP) ratio will fall to around 47% this year from 49% last year thanks to strong tax revenue. However, Moody's said, "It has risen significantly from 35% in 2019, and over the long term fiscal pressures will grow due to aging, mandatory spending related to defense and security, and investment expense to maintain export-centered competitiveness."
Earlier, in February, Moody's kept Korea's credit rating at Aa2. Aa2 is the third-highest rating in Moody's scale after Aaa and Aa1. Korea was upgraded to that rating in 2015 and has maintained it to date. Moody's cited as factors that could trigger a downgrade of the credit rating: ▲ deterioration in government finances ▲ a decline in the growth rate due to internal and external shocks ▲ heightened risks from political polarization or geopolitical tensions.