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| Fitch Ratings Director Jeremy Zook speaks during the 2021 Fitch on Korea webinar, Wednesday. Screenshot from Fitch Ratings' website |
By Park Jae-hyuk
Fitch Ratings viewed weakening demand for Korea's exports as a bigger risk to the country's sovereign rating than the snowballing household debt problem and surging housing prices, which are regarded by government officials as the biggest problems at this moment.
"Exports are robust, driving strong manufacturing sector performance, but they are likely to slow on supply chain disruptions and moderating global demand," Jeremy Zook, the director of Fitch's Asia-Pacific Sovereigns team, said during a webinar, Wednesday.
The global credit ratings agency has already warned that signs of supply chain disruptions are starting to deal a blow to Korean manufacturers, when it cut the country's GDP growth outlook to 4 percent in September from 4.5 percent in July.
Fitch noted at the time that disruptions faced by industries in Southeast Asia, particularly in Vietnam, began to hit Korean manufacturers due to the deep supply chain links in electronics and automobiles.
From that standpoint, Fitch anticipated the Korean economy to grow 3 percent in 2022 and 2.3 percent in 2023 and maintained the country's AA- sovereign rating with a stable outlook.
Zook, however, warned about a rise in the Korean government's debt-to-GDP ratio and cited this issue as another negative factor for its sovereign rating.
He said that the 2022 government budget unveiled in August projected only a modest fiscal consolidation, as the country has been emerging from the coronavirus pandemic shock, but he added that a persistent rise in public debt over the longer run could pose greater risks for the rating, amid higher government spending pressures associated with an ageing population.
"Korea's potential growth is under pressure from demographic challenges," he said.
The Fitch director also mentioned escalating geopolitical tension with North Korea as another risk for South Korea's sovereign rating.
