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In its latest credit review of the South Korean economy, Fitch Ratings affirmed Korea’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘AA-‘ with a Stable Outlook.

Key takeaways

“The pandemic has weighed on economic growth and public finances, but domestic control of the virus accompanied by a robust policy response have limited the severity of the deterioration in these metrics relative to other advanced economies and ‘AA’ peers.”

“We forecast the Korean economy to contract by a modest 1.1% in 2020 (‘AA’ median 7.1% contraction), reflecting an effective coronavirus containment strategy without the need to resort to strict lockdown measures.”

“We forecast the fiscal deficit to widen to 4.4% of GDP (including social security funds) in 2020, from a 0.6% deficit in 2019, as a result of the fiscal response measures to the pandemic and the government’s planned pre-pandemic fiscal stimulus. At this level, Korea’s fiscal deficit in 2020 is modest compared with the forecast ‘AA’ median of 8.6% of GDP.” 

Market reaction

USD/KRW has stalled its upside, now reversing from two-day highs of 1,165.92. The spot post smalls losses to trade at 1,163.43, as we write.

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