S&P Global Ratings affirms Korea’s ’AA/A-1+’ ratings with stable outlook

Investing.com -- S&P Global Ratings has affirmed its ’AA’ long-term and ’A-1+’ short-term foreign and local currency sovereign credit ratings on Korea, as announced on April 15, 2025. The outlook on the long-term rating remains stable, reflecting the expectation that Korea will maintain average growth rates higher than most other high-income economies over the next three to five years.

The ratings affirmation comes despite a deterioration in international trading conditions that could impact growth in Korea. However, the strong international competitiveness of the country’s key exporters is expected to keep external metrics robust. Real GDP growth in Korea is projected to remain higher than most other high-income economies.

The ratings agency does not view the political developments since the surprise declaration of martial law in December 2024 as having significantly weakened institutional support for the sovereign ratings. Geopolitical risks continue to weigh on the sovereign ratings on Korea, but recent developments in North Korea are not believed to have materially increased the risks of a serious economic or security event on the peninsula.

The stable rating outlook reflects the anticipation that general government deficits will remain modest in the next three to four years. S&P Global Ratings also believes that geopolitical risks on the Korean peninsula will not escalate to the point of damaging the country’s economic fundamentals.

Korea’s economic competitiveness and strong external balance sheet are expected to steady sovereign credit support in challenging global economic conditions. The country’s strong policy institutions are also seen as an anchor for Korean government credit support.

Korea’s well-diversified, prosperous, and relatively fast-growing economy support the ’AA’ long-term sovereign ratings. The country’s GDP per capita is estimated at US$34,500 in 2025, with projections of real GDP per capita growing by 2% annually from 2025-2028.

However, potential security threats from North Korea continue to weigh on the otherwise strong institutional assessment of Korea. High household leverage and a fast-aging population could constrain an increase in domestic demand, and the country’s exporters face intensifying competition in sectors like electric vehicle and new energy manufacturing, as well as the semiconductor sector.

Despite these challenges, a slower-growing Korean economy is still expected to outperform most other high-income economies. This is partly due to the fact that a few Korean firms are leading players in the fast-growing parts of the information technology sector, and the country is home to very competitive firms in sectors such as shipbuilding.

S&P Global Ratings projects Korea’s real per capita GDP will grow by approximately 2% annually over 2025-2028, with Korea’s per capita GDP expected to rise to nearly US$41,000 in 2028, from below US$35,000 in 2025.

The country’s strong institutions and policy environment are seen as key credit supports. Despite the unexpected declaration of martial law in the country early in December 2024, Korean institutions have been quick to address potential instability resulting from its fallout. Policy institutions were active in ensuring that the fallout of the political uncertainties did not seriously hurt the economy and financial system.

Despite the general government deficits in recent years, Korea is expected to maintain a light government debt burden. The nation’s net general government debt is a little below 9% of GDP this year and is expected to decline gradually over the next few years.

Korea’s strong external metrics are an anchor for the sovereign ratings. The country has a favorable net international investment position and a long record of external surpluses. External liquid assets of the government and financial system are projected to exceed total external debt by close to 20% of current account payments as of end-2025.

The Bank of Korea’s monetary policy regime, which has been in place since 1998, supports resilient and sustainable economic growth. However, Korea’s high household debt could constrain monetary flexibility.

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