Korea could face further economic woes this year resulting from the downgrading of major countries’ credit standings, a financial research institute warned Thursday.
The Korea Center for International Finance predicted in its report that the United States, the United Kingdom and Japan may see their sovereign ratings downgraded this year.
It cited three major rating firms’ assessments of the countries. The firms ― Moody’s Investors Service, Standard & Poor’s and Fitch Ratings ― gave negative credit forecasts for the U.S. and Britain.
S&P and Fitch also made a negative projection for the Japanese economy.
The KCIF said a negative credit outlook means there is the possibility of a downgrade of the country’s rating in the future.
S&P adjusts their evaluation every six months to two years, with Fitch reviewing every one or two years and Moody’s looking at a “mid-term perspective.”
In addition, the research center cited the degenerating fiscal soundness of the three economies as the reason for their possible downgrade.
The three countries have ramped up policies to stave off fiscal problems but face low long-term growth, it said.
Analysts said the possible downgrades would likely weigh on Korea’s real economy as well as its financial sector.
A Samsung Securities analyst said lower ratings could cause jitters in the local financial market, devaluing assets and sapping consumer and investor sentiment.
He also said a downgrade in Japan’s rating could lead to a weakening yen, which would negatively impact local exports.
Moody’s said Washington needed to come up with further measures to deleverage its massive government debt, despite the last-minute settlement to avoid going over the fiscal cliff.
S&P said Britain’s growth would stay at an average of 1.6 percent until 2015, and such low growth would dampen household consumption, which accounts for 67 percent of its gross domestic product.
Fitch indicated a downgrade for Japan, citing political instability and a lack of confidence in its deleveraging efforts.
By Kim Yon-se (
kys@heraldcorp.com)
