International credit rating agency Moody's has raised its economic growth forecast for South Korea to 3.5% for this year, citing a semiconductor supercycle and strong export performance that are expected to support growth at least until mid-2027.
According to relevant authorities on August 18, Moody's released a report following its recent review of South Korea's sovereign credit rating, projecting the country's gross domestic product (GDP) growth rates at 3.5% for this year and 2.7% for next year.
This year's forecast is 0.3 percentage points higher than the average estimate of 3.2% from eight major investment banks compiled by the International Financial Center at the end of last month.
Moody's had previously estimated South Korea's growth rate at 1.8% in its February credit rating report. It raised this figure to 2.5% in May and has now increased it by another full percentage point within three months, marking a total increase of 1.7 percentage points over the past six months.
The primary reasons for the upward revision include rising demand for semiconductors and increased exports. Moody's noted, "Chip demand continues, and there are limited companies that can realistically replace South Korea's high-end memory suppliers," predicting that the semiconductor sector will maintain a strong trend at least until mid-next year.
The report also highlighted that South Korea's goods exports from January to July increased by 51% compared to the same period last year, attributing this growth to the robust performance of the semiconductor sector.
The government's three major mega-projects focusing on semiconductors, artificial intelligence (AI) data centers, and physical AI are also seen as factors that could enhance growth potential. This strategy aims to diversify the industrial base concentrated in the metropolitan area and secure new growth drivers.
Moody's described this as a "consistent and ongoing policy effort to keep pace with technological innovation." If the mega-projects are implemented as planned, they could contribute to increased productivity and potential growth rates.
Thanks to the rise in growth rates and surplus tax revenues, the fiscal situation is expected to improve compared to previous forecasts. The fiscal deficit ratio relative to GDP is projected to be 3.8%, which is 0.1 percentage points lower than earlier estimates.
However, the increase in mandatory spending due to an aging population, defense and security costs, and the need for investment to maintain export competitiveness have been identified as long-term fiscal burdens. Without accompanying policy reforms, there could be increased pressure on government debt.
Moody's currently rates South Korea's sovereign credit rating at 'Aa2', the third highest level. While the effectiveness of policies and economic strengths support this rating, the challenges of aging and long-term fiscal burdens remain to be addressed.
This report is a result of the regular review of the sovereign credit rating and does not involve any adjustment to the rating itself. Moody's clarified that this review does not indicate any likelihood of a credit rating change in the future.
* This article has been translated by AI.
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