Political uncertainty in South Korea surrounding the impeachment of President Park Geun-hye will probably delay investment and disrupt consumer confidence, but Fitch Ratings analysts don’t expect to the turmoil to negatively impact the nation’s sovereign rating or overall economic activity.
The ratings firm affirmed Korea’s “AA-“ rating with a stable outlook in March and expects GDP growth of 2.5% to 3.0% in 2017 and 2018, which is higher than the 1.6% median rate for countries rated “AA-."
While the country decides whether to uphold Park’s impeachment, Fitch analysts see an opening for a presidential election to find Park’s replacement ahead of the December 2017 date that was originally scheduled.
Corporate restructuring passed in the nation’s 2017 budget is expected to weigh on GDP growth in the short term, but is likely to lead to a more productive allocation of resources over the long term, Fitch said. “The credit profile would be affected if the political situation were to develop in such a way that leads us to reassess governance standards,” Fitch analysts said. “It is possible that the strong public reaction to this scandal might eventually lead to weaker links between the state and the corporate sector, and a structural improvement in governance. However, changes in business culture are unlikely to happen quickly and require government support beyond the presidential election.”
– Nicholas Stern, editorial associate