June 21, 2021

Economic powder keg remains despite Korea‘s virus containment: S&P

PUBLISHED : October 15, 2020 - 16:26

UPDATED : October 15, 2020 - 18:38

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Despite the containment of the coronavirus pandemic nationwide, South Korea, Asia’s fourth-largest economy, is still sitting on an economic powder keg, high-ranking officials of credit rating agency S&P Global Ratings said on Oct. 15.

While Korea and other Asia-Pacific economies are seeing a relatively swift recovery from the COVID-19 pandemic thanks to timely policies and boosted trade, they appear to be far off from pre-COVID levels, Shaun Roache, chief Asia-Pacific economist at S&P Global Ratings, said in a teleconference. 

To Korea, employment mattered the most.

“Korea is one of the best-performing economies in the world. ... But Korea will still be in a deep recession. And it would be many years before employment in Korea gets back to where it would have been without COVID,” he said.

Roache cited a comparatively high proportion of jobs in service sectors -- mostly part-time -- that are largely prone to the COVID-19 fallout, such as retail, accommodation and food services.

“Waves of infection will continue to emerge, will affect the service sector industries and will dampen hiring,” he said.

He added that the trend toward job losses among part-timers, while few full-time positions were lost, illustrated the polarized nature of the Korean labor market.

This shows that Korea is not immune to the prolonged effects of the pandemic on the economies in the Asia-Pacific region.

“Some hard work lies ahead for Asia-Pacific,” Roache said. “We expect it to take years, not months, for economies to fully recover. What this means is consumption is going to remain still weak in many places as wages remain fairly soft, and that will mean inflation is going to remain low.”

S&P Global Ratings Senior Director Kim Eng Tan, in charge of Sovereign and International Public Finance Ratings, said Korea had room for more fiscal engagement to ward off risk factors, such as the fast pace at which its population was aging and the lingering geopolitical uncertainties.

“The long-term trend affecting the Korean economy in the future may need more fiscal outlay, such as the rapidly aging population as well as the potential instability on the Korean Peninsula,” Tan said.

This stems from “a great deal of fiscal flexibility” on the part of the Korean government, as the damage done to the national economy is relatively small with the infection rates under control, he added.

As for the current government debt level, Korea remains consistent and transparent in its ability to keep it at a manageable level, which is supportive of its AA credit rating.

However, the Korean government’s latest pledge to keep its debt level under control starting in 2025 is not a point of consideration for its current credit rating.

This comes against the backdrop of the government plans to limit the nation’s debt-to-GDP ratio to no more than 60 percent and its consolidated fiscal deficit to no more than 3 percent from 2025. Korea expects its debt-to-GDP ratio to reach 58.6 percent in 2024, compared with below 40 percent before the pandemic.

“We have seen similar guidelines in other countries, and when the governments reached such (deadlines) ... sometimes they do not respect it and sometimes they changed the law,” he said.

The media event took place before the webinar event co-hosted with the Korea Center for International Finance on Oct. 15.

By Son Ji-hyoung (

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