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Credit ratings agency expects Bank of Korea to maintain key rate until 2022
By Park Jae-hyuk
S&P Global Ratings picked aggressive investments by Korean conglomerates in electric vehicles (EVs) and self-driving technologies as one of the most important issues to keep an eye on this year, expressing an optimistic outlook for businesses engaging in the semiconductor, IT and automotive industries.
"Hyundai Motor Group is aggressively investing in self-driving vehicles and robotics technologies, while LG Chem and SK Innovation are betting on EV batteries," S&P credit analyst Park Jun-hong said in an online press conference, Wednesday. "Samsung Electronics and LG Electronics are also making aggressive investments in automotive components to foster the sector as their future growth engine."
Voicing expectations that their investments in the future of the automobile industry will have a significant impact on the entire Korean economy, he also said the credit ratings of Korean companies have become stable since the second half of last year, based on their earnings recovery.
According to the analyst, the pandemic has particularly brought benefits to chipmakers and IT firms, such as Samsung Electronics, SK Hynix, LG Electronics and LG Display, due to a shift to online transactions, virtual school classes and telecommuting.
Park said Hyundai Motor and affiliate Kia also achieved satisfactory earnings in the fourth quarter of last year, compared to their global peers, adding that the Korean carmakers will likely continue showing earnings recoveries this year.
However, the S&P analyst anticipated domestic oil refiners will continue to face downside risks, due to continually weak demand and low refinery margins.
Regarding Korea's economic growth, the credit rating agency maintained its forecast of 3.6 percent made last October, which is higher than the 3 percent growth outlook predicted by the Bank of Korea (BOK), as well as projections by the Ministry of Economy and Finance (3.2 percent) and the International Monetary Fund (3.1 percent), but lower than the forecasts of some top-tier investment banks.
Morgan Stanley expects Korea's 2021 GDP growth at 4.2 percent, while JPMorgan Chase sees 4 percent annual GDP growth this year.
"We expect Korea to transition to a 'Goldilocks' phase in 2021," Morgan Stanley economist Deyi Tan said in her latest report. "In this 'Goldilocks' phase, Korea would see a combination of accelerating and above-trend growth amid sequential momentum and low base effects; rising but still benign inflation; and 'big easy' policies."
S&P Asia-Pacific chief economist Shaun Roache said the BOK is expected to maintain its key interest rate at 0.5 percent until 2022, urging Korea to avoid tightening policies until it sees a recovery in employment.
The economist noted the central bank's monetary policy is not that loose at this moment, considering the real interest rate which fell below zero percent in the past.
He mentioned a faster-than-expected economic recovery and any move by the U.S. Federal Reserve as the factors that can affect the BOK's policies. But the credit ratings agency expects the U.S. Fed will not raise its interest rate until 2024.
Kim Eng Tan, the senior director of S&P's Asia-Pacific sovereign ratings, said the outlook for Korea's sovereign rating is stable because its debt remains considerably lower than many other countries.
