Seoul: Global credit appraiser S and P Global Ratings has maintained its credit rating for South Korea at "AA" with a stable outlook, highlighting the role of policy institutions in mitigating political uncertainties following a brief imposition of martial law in December.
According to Yonhap News Agency, S and P has upheld South Korea's long-term sovereign credit rating at this level since August 2016, when it had been upgraded from "AA-." The stable outlook is supported by expectations of South Korea maintaining growth rates above those of most high-income economies over the next three to five years. Additionally, government deficits are predicted to stay modest during the next three to four years.
S and P projects that trade disruptions will result in a real GDP growth slowdown to 1.2 percent this year, increasing to 2 percent by 2026. The real per capita GDP is anticipated to grow approximately 2 percent annually between 2025 and 2028, with per capita GDP expected to nearly reach US$41,000 by 2028, up from below $35,000 in 2025.
Despite the December martial law, S and P notes that South Korea's institutions and policy environment continue to provide key credit support. The swift reversal of the martial law declaration and the response of political institutions are seen as mitigating factors that limited potential damage. However, the events have intensified political divisions, potentially affecting future policy initiatives.
S and P warns that increased political divisions might weaken future governments' capabilities to garner popular support for necessary policy changes, which are vital for strengthening governmental finances and economic resilience amid an aging population. Security threats from North Korea remain a consideration in S and P's assessment, though the risk of a serious conflict is deemed small. S and P believes North Korea is unlikely to engage in excessively provocative actions, given its recent rational behavior.