Moody's denies Seoul's rosy economic outlook

Ratings agency warns of rating downgrade for Korean corporates

By Park Jae-hyuk

The nation's economic growth will continue to remain sluggish in the forthcoming year, amid the intensifying downward pressure on credit conditions for Korean corporations, Moody's Investors Service said Tuesday.

“We are looking at our GDP growth forecast at 2.1 percent in 2020, slightly above the 2.0 percent that we have for 2019, which is down from 3.2 percent in 2017, a recent high,” Christian de Guzman, senior vice president of Moody's sovereign risk group, said at a press conference in Seoul.

He expected the U.S.-China trade dispute and Hong Kong protests will continue to weigh on the export-reliant Korean economy next year.

The global ratings agency's forecast is in stark contrast to the government's optimistic outlook for the nation's economy next year.

Finance Minister Hong Nam-ki said earlier in November that the government will achieve a 2.3 percent GDP growth rate in 2020, by recovering the vitality of the private sector. The state-run think tank Korea Development Institute also predicted the nation's economy will grow 2.3 percent next year.

Moody's, however, rebuffed the government's forecast, giving warnings of non-financial companies' worsening profitability.

“Following the global economic slowdown and trade disputes, many export-reliant Korean companies will face worsening profitability,” Moody's associate managing director Chris Park said. “Negative rating actions are likely to outnumber positive ones, given many companies' elevate leverage. 14 of the 24 rated private-sector companies have negative outlooks.”

Park said refiners, chemical firms, battery makers and tech firms are vulnerable to the trade tensions.

Moody's has already sent out warning signals to Korean companies' credit ratings throughout the second half of 2019.

After revising SK hynix's outlook to negative in July, the ratings agency downgraded rating outlooks for E-mart, SK Innovation, SK global chemical and LG Chem.

It cited the worsening business environment and financial leverage as the reason for the negative outlooks.

The Korea Investors Service (KIS), a Moody's subsidiary that rates companies independently from its parent, said none of the industry sectors are facing a positive credit outlook.

“There is no industry sector assured of a positive outlook for 2020,” KIS corporate finance group head Yoo Kon said, expecting Korean companies will face difficulties in switching from the downward trend next year.

Given that the U.S.-China trade war involves various issues beyond trade, both Moody's and KIS said the trade tension will last longer, despite the recent trade talks between the world's two-largest economies.