Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
S&P optimistic about Korea's solid economic recovery
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By Anna J. Park
Agency adjusts Korea's economic growth forecast to 4.0% this year
By Anna J. Park
S&P Global Ratings expects the Korean economy to continue displaying solid growth throughout this year and in 2022, in spite of the lingering impact of the COVID-19 pandemic, mainly due to rising exports as well as mild inflationary pressure.
S&P Global Ratings' chief Asia-Pacific economist, Shaun Roache, said during an online press conference on Wednesday, that he has been optimistic about the prospect of Korea's economic recovery, upgrading the country's growth rate forecast for this year from 3.6 percent to 4.0 percent, while 2022 growth is forecast at 2.8 percent.
Roache pointed out that while recovery remains mostly on track in the Asia-Pacific, economic growth of the region in general is still around 5 percent below pre-pandemic levels, while Korea is about 2 percent below. The chief economist added that the Korean economy is expected to display faster-than-expected growth this year and in 2022.
The main obstacle hindering a recovery is a slow recovery in private consumption, as opposed to strong exports that are helping the country's fast recovery.
“The constraint on the recovery remains domestic demand, especially in private consumption. External demand remains robust, and this has helped lift manufacturing investment,” Roache said during the conference.
The chief economist said inflationary pressure seems to be mostly transitory and will remain slightly below the central bank's target ranges, without posing a great risk for the Korean economy until 2022 when the key interest rate could go up to as high as 1.25 percent.
Roache elaborated that there are two types of inflation. The first type is related to unusual spending patterns by consumers last year due to the COVID-19 pandemic, specifically buying electronic appliances to make life at home easier. The second type of inflation is something that will come later as economies reopen, more jobs are created and unemployment rates fall. This second type of inflation will come slower, yet could become the biggest risk factor for the economy.
The economist said, however, the risks of this second type is much lower in the Asia-Pacific region, including Korea, because not only is household spending still much lower than other developed countries like the U.S., but the service sector is also recovering at a much slower pace.
“We expect Korea's inflation to remain quite low for the time being. The average inflation rate for this year is expected to remain under 2 percent this year, and the consumer price index (CPI) inflation will be 1.5 percent, within the central bank's target ranges,” the economist said.
When it comes to Korean companies' improved credit ratings, Park Jun-hong, a director who manages corporate ratings at the agency's Asia-Pacific office, highlighted that the enhancement in ratings is firmly grounded in their increased profitability. Korean companies have shown signs of a strong earnings recovery since the third quarter of last year in various sectors, particularly in IT, automobiles, steel and chemicals.
“Despite the negative impact from COVID-19, Korean companies' average credit ratings have been improved, as their profitability has increased. As demands for diverse sectors are on the rise, a favorable corporate environment has been formed,” Park said during Wednesday's conference.
The number of Korean companies with negative ratings has decreased to 25 percent, from last year's 35 percent, while those with positive ratings jumped to eight percent, from last year's five percent.