On the 15th, the international credit rating agency Standard and Poor's (S&P) maintained South Korea's sovereign credit rating at 'AA.'
S&P has given the same rating for the ninth consecutive year since raising South Korea's sovereign credit rating from 'AA-' to 'AA' in August 2016. The outlook for South Korea's credit rating was also maintained as 'stable.'
According to the Ministry of Economy and Finance, S&P projected that South Korea's economy may slow somewhat over the next 3 to 5 years but will show higher average growth rates than most high-income countries, leading to this assessment. S&P also forecasted that the South Korean government's fiscal deficit will remain at a reasonable level for the next 3 to 4 years.
S&P predicted South Korea's gross domestic product (GDP) growth rate for this year at 1.2% and 2.0% for next year. It noted that growth may stall this year due to worsening international trade conditions. Additionally, from 2025 to 2028, South Korea's economic growth rate is expected to average about 2% per year, and by 2028, GDP per capita is projected to exceed $40,000 (about 58.69 million won).
S&P assessed that the 12·3 martial law situation has damaged confidence in South Korea's political stability. However, it noted that the swift lifting of martial law has mitigated the adverse effects on society.
S&P found that legal regulations and procedures were appropriately adhered to until the presidential election schedule was confirmed. It evaluated that due to proactive policy responses from policy-making institutions, political uncertainty did not seriously affect the economy and financial system. However, it pointed out that if political divisions continue, the policymaking momentum of the next government could weaken.
S&P stated that if two conditions are met—resolving security and contingent debt risks related to North Korea and an unexpected major push for economic liberalization from North Korea—South Korea's credit rating could be upgraded. Conversely, it warned that if tensions related to North Korea escalate to the point of causing serious damage to the economy and finances, or if growth rates fall significantly lower than those of other high-income countries, the credit rating could be downgraded.
S&P predicted that this year's general government fiscal balance compared to South Korea's GDP will be minus (-) 0.8%. It estimated that favorable revenue conditions would result in a slight decrease compared to last year's figure (-1.00%). However, it noted that the impact of tariffs from the United States and the global economic slowdown could exert downward pressure on the revenue sector until next year.
S&P indicated that while the contingent liability risk of South Korean financial institutions is at a limited level, debt from non-financial state-owned enterprises is constraining fiscal operations. The largest vulnerability for South Korea's credit rating is the unification cost that may arise if the North Korean regime collapses. S&P described this amount as uncertain and a significantly burdensome contingent liability.
Strong net external assets, a continuous current account surplus, and solid external soundness are the basis for a favorable credit rating. S&P predicted that South Korea's current account surplus will approach 5% of GDP over the next three years. It discussed the depth and breadth of South Korea's foreign exchange market, which actively operates under a floating exchange rate system, as "a strong external buffer for the South Korean economy."
The Ministry of Economy and Finance remarked, "S&P's maintenance of the credit rating reaffirms strong confidence in our economy" and noted that "given the high levels of uncertainty both domestically and internationally, this sovereign credit rating decision will have a positive impact on South Korea's external credibility."