South Korea now safer than Japan

On a score of 68.7, down 0.7 since January, South Korea – rated A+ by Fitch, A by S&P and A1 by Moody’s – has stood relatively firm against the global rise in risk. Its score remains some 25 points above the ECR Asia average, virtually unchanged on a year ago. The sovereign has climbed four places in ECR’s global rankings this year, to 24th, recently moving above Japan – a trend that ECR previously picked up on (South Korea closes in on Japan as both climb rankings). South Korea’s economic, political and structural assessments are all a little brighter compared with January – its economic risk score is now 13.1 points higher than Japan’s, compared with 12.2 points in January, and Japan’s superior political and structural risk differentials have narrowed lately. South Korean economic risk has been boosted by a higher score for monetary policy/currency stability (highlighting in part a fall in inflation to 1.5% year on year in July). The government finances indicator also has a higher score – unlike indebted eurozone sovereigns, Seoul runs a small general government surplus, which is forecast to increase to 2.3% of GDP in 2012 and 2.8% in 2013, according to the Organization for Economic Cooperation and Development. Political risk has been bolstered by information access/transparency and government stability, and structural risk by demographics and hard infrastructure. That’s not to say that South Korea isn’t being affected by a weak global economy and domestic troubles, however (Household debts leave Korean banks with a headache). Recently lower scores for bank stability, the economic-GNP outlook and employment/unemployment have crept into the reckoning. The Bank of Korea (central bank) lowered its 2012 growth outlook in July to 3% from 3.5% in April, citing weakened exports as well as a combination of household debts and a housing market slump constraining domestic spending. The forecast is lower than the 3.3% predicted by the finance ministry, the IMF and the OECD. The central bank has taken action to support the economy with interest rate cuts – another factor supporting the improved monetary policy score. The government is now mulling over its response.

Source: Euromoney Country Risk

This article was originally published by Euromoeny Country Risk