Moody's Investors Service has given a positive review of the Korean economy.

In its report, "Korea: Economic Growth Fundamentals Remain Strong, Despite Challenges," issued June 9, the bond credit rating company said the Korean economy has been on its way to a recovery since 2012. It has been powered by local companies' high export competiveness, driven by the high quality of their products, and the government's fiscal policies, including stimulus packages.

The credit rating agency said the cost of gross fixed capital formation is increasing due to the construction of factories, and that the value of the Korean won is rising. Though the won is up, exports are still growing, due to local companies' improved brand power. It added that the Korean government's stimulus packages, including a supplementary budget, are driving the economic recovery and that the local economy will continue to grow through 2015.

The agency estimated Korea's economic growth at 3.8 percent in both 2014 and 2015, and said the weakening of consumption due to the recent Sewol ferry disaster would only be a "short-lived" phenomenon.



Moody's said Korea's economic fundamentals are strong, despite negative external factors, such as the tapering of U.S. monetary policy, known as quantitative easing. It said that Korea is considered a "safe haven" by global investors and that Korea's exposure to external shocks that surfaced during both the Asian financial crisis in 1997 and the global financial crisis in 2008 have been largely offset by sufficient foreign currency reserves and banks' efforts to manage risk and to reduce foreign debt.

The Korean government's ambitious "Three Year Plan for Economic Innovation" also received a favorable review. Moody's said that with the reform effort, including a three-year plan, Korea would likely outperform most high-income and advanced economies. It anticipated that government efforts to support employment among young adults and women, to increase flexibility in labor markets, and to revitalize the service sector through deregulation, would all help reverse the economy's downward risks caused by structural problems, such as decreases in physical and human capital.

Speaking of reform in the public sector, Moody's pointed out that the government-wide effort to cut public debt has reduced concerns over the government's contingent liabilities, which has been a key barrier to an upgrade in Korea's sovereign debt rating. It said the government's policy to normalize public institutions and to estimate aggregate public sector debt would both be good for Korea's debt rating.

The agency added that there are worries about both the increasing number of loans taken out by the underprivileged from non-banking financial institutions and the contraction in consumption due to rapidly rising household debt. Recently, however, the expansion of such loans has slowed and the ongoing government efforts to improve household debt are both positive factors.

By Limb Jae-un
Korea.net Staff Writer
jun2@korea.kr