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Fitch Maintains South Korea's Rating; Outlook Stable

Fitch Ratings affirmed sovereign ratings of South Korea with a 'stable' outlook, on Wednesday.

The ratings were retained at 'AA-' as it balances robust external finances, steady macroeconomic performance, and a record of sound fiscal management against evolving geopolitical risks related to North Korea.

The agency said the 2020 budget, enacted in December, implemented significant fiscal stimulus to confront sluggish growth prospects. According to Fitch, Korea has the fiscal space to utilize near-term fiscal stimulus.

Fitch expects GDP growth to strengthen in 2020 to 2.3 percent from 2.0 percent in 2019, underpinned by the fiscal stimulus, gradually rising semiconductor prices, and reduced trade policy uncertainty.

The rating agency forecasts inflation to remain low, averaging 0.5 percent this year. The Bank of Korea is expected to cut its policy rate by 25 basis points in 2020 to offset downside risks to the economic outlook and firm up inflation.

Nonetheless, Fitch observed that high household debt, at 96.6 percent of GDP in the third quarter of 2019, increases the economy's vulnerability to shocks and weighs on medium-term consumption prospects. Geopolitical risks around relations with North Korea also weigh on the rating.

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