Fitch maintains South Korea's rating at 'AA-' with stable outlook

Seoul: Global credit appraiser Fitch Ratings said on Thursday it has reaffirmed South Korea's sovereign rating at "AA-" with a stable outlook.

It is the fourth-highest level on the agency's sovereign ratings table, and Fitch has maintained AA- for South Korea since September 2012, when it upgraded the rating by one notch from A+.

The latest decision comes despite concerns over political unrest following President Yoon Suk Yeol's imposition of martial law, albeit short-lived, on December 3 and his subsequent impeachment, reports Yonhap news agency.

"(South) Korea is in the midst of a political crisis that we believe will be resolved in a constitutional manner that does not fundamentally alter our assessment of institutions or governance," the agency said in its latest report.

Fitch said it will continue to monitor risks related to potential political volatility as uncertainty persists.

The agency noted that South Korea's economic fundamentals remain stable, with its credit rating reflecting strong external finances, steady macroeconomic performance and a dynamic export sector.

Fitch revised its growth forecast for South Korea's economy to 1.7 per cent for this year, down from a previous projection of 2 per cent, citing the negative impact of political uncertainty on business confidence.

The latest forecast is slightly more optimistic than the 1.6 per cent growth projection by the Bank of Korea, which cited concerns over the ongoing political crisis.

"Exports will moderate, partly as we expect a 10 percent global tariff by the new U.S administration, and downside risks are high given uncertainty over the U.S. tariffs," Fitch said.

South Korea's exports, one of its key economic growth engines, declined in January for the first time in 16 months, according to government data.

On a positive note, Fitch highlighted the Seoul government's plan to front-load 75 percent of fiscal spending for 2025 in the first half of the year.

The agency also pointed out that household debt remains high compared with other advanced economies.

However, it noted that borrowing has risen slightly in recent quarters as interest rates have eased and apartment prices have stabilized.

Fitch added that the nation's strong external finances continue to be supported by persistent current account surpluses.

The South Korean government said Fitch's latest rating announcement reaffirms unwavering confidence in the country's economy.

"It is expected to alleviate a significant portion of foreign investors' concerns about South Korea's external credibility," the finance ministry said in a release.