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| Christian de Guzman, right, vice president of Moody's Investors Service, speaks about Korea's growth at a press conference in Seoul, Tuesday. Yonhap |
Moody's remains positive over fundamentals
By Park Hyong-ki
The ongoing trade conflict and a slowdown in China will continue to pose a downside risk to the Korean economy, said Christian de Guzman, vice president for sovereign risk at Moody's Investors Service.
As a trade-dependent economy, Korea is projected to grow 2.1 percent this year under these circumstances.
This would be the "slowest full-year outturn since the global financial crisis of 2008," he added. Moody's initial forecast for Korea's growth was 2.3 percent in 2019.
"One of the things is that there is low demand because of a slowdown in China," de Guzman told the press in Seoul, Tuesday.
"Also, there is the U.S.-China trade conflict we have been seeing over the past few weeks."
Other risks include the planned imposition of U.S. tariffs on car imports in the near future.
Even though Korean cars are likely to be exempted, the analyst say the country, along with Japan, Germany and Mexico, "remains vulnerable to auto import tariffs."
U.S. President Donald Trump has decided to delay his decision on car tariffs by six months.
"The external headwinds Korea is facing pose a greater risk than the government's labor and minimum wage policies," de Guzman said.
"The policies appear to have merely exacerbated the impact of the external trends, including weak export demand."
However, Moody's believes Korea's long-term fundamentals remain intact.
This is because Korea's economic deceleration this year will be driven by short-term external pressures and cyclical factors, rather than structural market problems, the analyst said.
The government's planned supplementary budget will be "positive" for growth, he added.
"We also expect some turnaround in the tech cycle in which semiconductors will rebound toward the second half of this year," de Guzman said.
"The won's weak performance has limited impact on the government's finances. This is because Korea's debt structure remains strong relatively to other developed economies."
He reiterated the won's depreciation does not change his view on Korea's strong fundamentals.
To this end, Moody's does not see the need to change Korea's sovereign credit rating, despite downside risks and pressures.
Korea's rating at "Aa2" with a stable outlook will remain unchanged, as well as Moody's outlook for the country's financial market.
Korea's banking system with stable profitability, liquidity and sound asset quality will stay "sound" over the next 12 to 18 months, despite the slowdown.
"These support our stable outlook for the sector," said Sophia Lee, vice president of financial institutions at Moody's Investors Service.
However, South Korea still faces geopolitical risks concerning North Korea.
"We previously said that a recurrence in tensions remained a distinct possibility given the absence of a well-defined path toward permanent peace here," de Guzman said.
"The recent resumption of weapons testing reinforces our view."
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