South Korea's Credit Rating Raised One Step to Aa2 by Moody’s

  • Agency points to strong credit metrics, prudent fiscal stance
  • First time Korea has third-highest rank, finance ministry says

South Korea’s credit rating was increased one level by Moody’s Investors Service, which cited the nation’s “strong and resilient” credit metrics and prudent fiscal stance.

Moody’s raised the rating for South Korean debt to Aa2 from Aa3, one step above China and two above Japan. It’s the first time the nation has received the third-highest ranking by a major rating company and is meaningful given that other countries’ ratings are currently being cut, the Finance Ministry said. Standard & Poor’s and Fitch Ratings both rank South Korea at AA-, the fourth-highest level.

The nation’s economic and fiscal strength were the main drivers for the change and the country will probably remain resilient compared to its peers even against a backdrop of weak external demand, Moody’s said in a statement published late Friday in Frankfurt. The agency changed the nation’s outlook to stable from positive.

“Moody’s decision to upgrade shows South Korea’s international creditworthiness differentiates it from other nations on the back of solid economic fundamentals and amid emerging-market instability,” the Finance Ministry said in a statement. “It will be a chance for South Korea to be recognized as an advanced economy to foreign investors.”

Moody’s said it projects South Korea’s economy will gradually return to trend growth of around 3 percent over the next five years, which is quicker than the International Monetary Fund’s estimated average of 2.2 percent for advanced economies in 2016. The potential growth rate is expected to be around 3 percent to 3.2 percent from 2015 to 2018, the Bank of Korea reported Friday.

Growth in Asia’s fourth-largest economy accelerated to an annual rate of 2.7 percent in the third quarter, from 2.2 percent in the previous three months which was the slowest in two years. The central bank predicts the economy will expand 2.7 percent in 2015 and 3.2 percent the following year.

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