Moody's Surprisingly Upgrades South Korea's Growth Forecast to 3.5% Citing Limited Alternatives for Memory Suppliers

Global credit rating agency Moody's has sharply raised South Korea's growth forecast for this year to 3.5%, predicting that the semiconductor boom will continue at least until the middle of next year, it was confirmed today (August 18).

Following its regular credit rating review for South Korea, Moody's projected in a recent report that the country's gross domestic product (GDP) will grow by 3.5% this year and 2.7% next year.

This is 0.3 percentage points higher than the average 3.2% growth forecast for this year by eight major investment banks (IBs) as of the end of last month, compiled by the Korea Center for International Finance.

In its credit rating report for South Korea released in February this year, Moody's had projected this year's growth rate at 1.8%.

This represents an upward revision of nearly double in half a year.

According to relevant authorities, Moody's raised its forecast to 2.5% in its global economic outlook released in May, and further increased it by 1.0 percentage point in three months.

The more positive assessment was based on the semiconductor supercycle and robust exports.

In particular, Moody's noted, "Demand for chips remains robust, and there are limited companies that can realistically substitute South Korea's advanced memory suppliers," predicting that the semiconductor cycle will remain strong at least until mid-2027.

It explained that merchandise exports surged by 51% in the January to July period this year compared to the same period last year, which was "supported by very strong semiconductor growth."

It also mentioned mega-projects pursued by the government to intensively foster three core areas: semiconductors, artificial intelligence (AI) data centers, and physical AI.

Moody's evaluated that South Korea aims to create new growth engines through mega-projects and pursue balanced development beyond concentration in the capital area, noting that such strategies "demonstrate sustained and consistent policy efforts to keep pace with technological innovation."

It also highlighted the perspective that if these successive attempts are successful, they could increase productivity and raise potential growth rates.

Moody's projected that amidst continuing excess tax revenue and higher growth forecasts, the South Korean government's fiscal soundness will improve better than initially expected, forecasting this year's fiscal deficit relative to GDP to be 3.8%, a 0.1 percentage point improvement from the initial target.

However, it advised that without policy reforms, mandatory spending due to aging, defense and security costs, and investment expenses to maintain export competitiveness could increase fiscal pressures.

Moody's previously rated South Korea's sovereign credit rating at Aa2.

Regarding this, Moody's explained that it is "supported by policy effectiveness and economic strengths."

It cited increasing government debt and long-term fiscal burdens from population aging as challenges.

Moody's drew a line, stating that this report is not for rating South Korea's credit, nor does it imply whether a new credit rating will or will not be announced soon.

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.