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Wed, September 27, 2023 | 16:58
Markets
Consumption slowdown poses biggest risk to Korean firms: S&P
Posted : 2022-07-06 16:28
Updated : 2022-07-07 16:17
Lee Min-hyung
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The corporate logo of S&P / Yonhap
The corporate logo of S&P / Yonhap

By Lee Min-hyung

The growing fear of a consumption slowdown comes as the biggest risk to Korean companies during this period of soaring inflation and global financial uncertainty, global credit appraiser S&P Global Ratings said in an online press conference, Wednesday.

The ratings agency expected the consumption slowdown following the outbreak of the pandemic and the rapid rise in prices to keep putting pressure on corporate earnings here for at least a year.

"Inflationary pressure and consumption slowdown risks, in particular, could weigh on the operating environment for Korean corporates in the next 12 months, in our view," S&P Global Ratings credit analyst Park Jun-hong told reporters during the press conference.

He went on to say that Korean firms would face a tough business environment from a short- to mid-term viewpoint due to escalating external risk factors such as in China and Ukraine.

"With macro uncertainties continuing, we expect the credit outlook for Korean corporates to be relatively more difficult, but remain balanced overall," he said.

China, for instance, is Korea's largest trading partner, so the former's economic slowdown may end up weakening local firms' profitability, even if the China factor is not that critical to local firms' earnings.

"China is the largest export destination for Korea, and its impacts are broad-based, but we have seen Korea's corporate presence in China weaken gradually in the past few years," he said.

The global macroeconomic circumstances are getting more uncertain amid global monetary tightening driven by the U.S. Fed.

The ratings agency also raised the possibility of the Bank of Korea (BOK) taking a big-step rate hike of 50 basis points during its upcoming rate-setting meeting on July 13.

Louis Kuijis, chief economist in Asia-Pacific at S&P Global Ratings, said the BOK would keep its hawkish stance throughout this year amid growing inflationary woes.

According to Statistics Korea, the country's consumer prices soared by 6 percent in June from a year earlier. This rise was the biggest since the 1998 Asian financial crisis.

The S&P economist expects the Korean central bank to keep increasing its benchmark rate to 2.5 percent until next year. Korea's benchmark interest rate comes in at 1.75 percent for the time being.

The agency also forecast Korea's 2022 GDP growth to reach 2.6 percent, saying that the weak economic growth pattern will continue with a moderate level of inflation for a considerable period of time.


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