Moody's Investors Service on Monday upgraded South Korea's credit rating, citing a high degree of economic resilience and strong fiscal fundamentals.
The rating agency said it is lifting the Republic of Korea's government bond rating to Aa3 from A1, with a 'stable' outlook. Moody's said South Korea's government finance metrics are very well placed among all Aa-rated peers.
According to the agency, strong fiscal fundamentals enable a relatively large degree of policy space to cope with contingent domestic risks and external shocks. The government's balance sheet has been relatively unscathed by the global financial crisis and, so far, by the Eurozone crisis, it noted.
The economy has demonstrated resilience to external shocks. According to Moody's, South Korean banking sector's reduced external vulnerability had an impact on the rating action. The continued status-quo in North-South geopolitics has also influenced the decision, Moody's said.
The economy faces risks from the recent intensification of the economic weakness in the Eurozone and the slowdown in China's growth, which is adversely affecting South Korea's exports. Nonetheless, Moody's believes South Korea's credit fundamentals would not be negatively affected at its current rating range.
"Our immediate concerns center on the potential for a drag on private consumption expenditure and, therefore, whether the high degree of resilience in the Korean economy would be impaired," the agency said.
In a separate report released on Monday, Bank of Korea said that South Korean consumer confidence tumbled to a seven-month low in August as Eurozone debt crisis and China's slowing economic growth affected households' sentiment.
The consumer sentiment index, a gauge of consumers' overall economic outlook, living conditions and future spending, came in at 99 for August, down from 100 in the previous month.
Consumer sentiment regarding current as well as future domestic economic conditions declined notably during the month. Consumers were also downbeat about their future living standards.
Recently, Bank of Korea Governor Kim Choong-soo has warned that downside risks to the central bank's 3 percent target are dominant due to the prolonged Eurozone problems and slowing growth in emerging markets.
by RTT Staff Writer
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