Geopolitical risk burdens S. Korea’s credit profile: Moody’s [INTERVIEW]

Geopolitical risk burdens S. Korea’s credit profile: Moody’s [INTERVIEW]

This article ‘Geopolitical risk burdens S. Korea’s credit profile: Moody’s [INTERVIEW]’ is the second in a three-part series of interviews with chief economists covering the Korean economy for the Big Three credit rating agencies to analyze the state of Asia’s fourth-largest economy amid rising interest rates and high inflation. _ ED.

Top credit rating agency asks Seoul to specify ‘well-defined path toward peace settlement’ with Pyongyang

By Kim Yoo-chul


As Washington and Seoul prepare for a long-term joint military exercise during the summer, Pyongyang faces “undesirable consequences” if they do not end their “military conflict.” It raises tensions by claiming that it is possible.

At a recent media briefing, White House National Security Council (NSC) spokesman John Kirby told reporters that Washington was very clear that North Korea was ready to conduct a nuclear test.

Told. “I’m not going to guess the timing or what it will look like, of course, I’ll be very careful about the possibilities of a nuclear test,” he said.
In September 2017, North Korea conducted a nuclear test at the largest nuclear test site to date.

Investors are primarily focused on how the conflict between Seoul and Pyongyang will affect South Korea’s financial markets and credit profile.

So far this year, Pyongyang has conducted 31 missile tests, some claiming to be the first ICBM launch since 2017.

However, North Korea is unlikely to escalate a series of major provocative tests into a full-scale escalation war, Moody’s Investors Service senior credit officer said geopolitical risks still important to the country’s credit profile. Warned about.

Moody’s Investors Service Vice President Anushka Shah

“Despite strong credit fundamentals, South Korea’s credit profile remains constrained by event risk due to the risk of unlikely military conflict with North Korea, but the impact is significant. In a recent interview, Vice President Anushka Shah has long emphasized increased geopolitical risk as a major trigger for rating action.

” North Korea has only a short-lived impact on the market, and investors are concerned about the aggravation of the conflict between China and the United States Simply put, the existence of cross-border nuclear North Korea is.

However, investors’ sentiment remains vulnerable amid rising inflation, new supply chain disruptions, rising commodity prices and weakening financial strength in both developed and emerging markets. Investors are more sensitive to even simple factors when the downside pressure outweighs the upside potential.

Decades of tension between the Korean Peninsula have not had a significant impact on the southern economy, government and fiscal functions, or national payments, but rising tensions pose a risk of military action conflicts. Shah said it would increase.

“And it could threaten South Korea’s economic growth or its strong financial position. Since the beginning of this year, North Korea has conducted a series of missile tests. Weapons testing goes to a lasting peace agreement. Without a well-defined path to, repetitive tensions continue to be a hallmark of our geopolitical risk assessment, “Shah said.

South Korean President Yoon Suk-yeol, right, listens to a policy briefing by Unification Minister Kwon Young-se at the presidential office in Seoul, July 22. AP-Yonhap

Moody’s maintains Aa2, South Korea’s “stable” reputation, backed by strong political effectiveness and a highly diverse and competitive economy. New York-based rating agencies say that significant and irreversible reductions in geopolitical risk, especially the reduction of the threat of the Peninsular War, are one of the key factors that could lead to sovereign rating upgrades.

Downward pressure outweighs upside potential

Not surprisingly, Mr Shah hopes that the country’s central bank, the Bank of Korea (BOK), will keep interest rates high no matter how slow economic growth slows. BOK is widely expected to raise interest rates by up to 2.25% this year. Many policy makers say banks are looking for possibilities to lower interest rates amid slowing economic growth and high levels of household debt in China.

“No matter how slow growth slows, central banks keep interest rates high and expect a rapid tightening of credit conditions to help curb demand enough to ease inflationary pressures on the demand side. Also applies to South Korea.

As a result, global financial and financial conditions are expected to tighten significantly from the end of this year to 2023, with inflation expected to moderate, “said Moody’s Vice President.

Especially in the electronics supply chain, manufacturers can close the gap created by China, which could benefit, “said executives, Moody’s said the Chinese economy grew his real GDP by 4.5%. He added that he recorded and expects 5.3% to follow.

Continuing aggressive rate hikes are costly and difficult for large Korean companies when financing is already difficult. Aggressive employment is declining as central banks in both developed and emerging markets are raising interest rates and depleting liquidity, Shah said.

Overall spending will increase or decrease in the coming quarters, primarily due to rising borrowing costs for household purchases and rising corporate costs.

“Slow growth will reduce labor demand and avoid undue pressure on real wage growth,” said the agency’s senior credit officer.

Currency traders watch monitors at the foreign exchange dealing room of KEB Hana Bank headquarters in Seoul, July 21. AP-Yonhap

Regarding South Korea’s inflation rating agency’s belief, which hit a record high in 13 years, and its expectations for next year, the Vice President said: Year. Given rising prices in the first half of this year, average annual inflation could be even higher, but could weaken from current levels as monetary tightening begins.

Moody’s export growth, consumption, He said he would monitor more frequent data, such as investment trends.
“Nevertheless, we expect global economic growth to slow and it is also hampering the Korean economy.

Global credit is deteriorating and will continue to improve for the rest of the year. In the face of rising borrowing costs this year, the potentially protracted military conflict between Russia and South Korea has exacerbated the slowdown in global economic growth, so downward pressure is possible upwards.  ”


Credit/Source : KoreaTimes

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