Global credit rating agency Moody’s said on the 12th that it kept South Korea’s credit rating at ‘Aa2’, unchanged. It also maintained the rating outlook at ‘stable’. Moody’s projected South Korea’s economic growth at 1.8% this year.

‘Aa2’ is the third-highest rating at Moody’s after Aaa and Aa1. Moody’s has maintained an Aa2 rating for South Korea since December 2015. The rating is two notches higher than Japan and China (A1).

Moody’s said, “Behind the decision to maintain the rating are South Korea’s very high level of industrial diversification and competitiveness, and its institutional capacity to manage key challenges,” adding, “These strengths offset the pressure for higher government debt arising from aging and slowing productivity.”

Moody’s expects South Korea’s economy to grow 1.8% this year, driven by increased semiconductor exports and a recovery in capital investment stemming from the global artificial intelligence (AI) boom.

Moody’s stated, “Over the next 10 years, South Korea’s average growth rate will likely gradually slow to about 2% compared with the past,” while adding, “Productivity gains through AI, capital-market and corporate governance reforms, and policies for balanced regional development will help defend potential growth.” It also said, “A strategy to diversify exports beyond semiconductors, including defense and shipbuilding, will also support growth.”

Moody’s identified population aging and geopolitical risks as risk factors. Moody’s pointed out, “The risk from population aging will burden public finances and lead to a gradual rise in the debt ratio.”

It added, “Tensions with North Korea are a long-term constraint,” noting, “More recently, political risks have increased, and the 2024-2025 martial law episode, impeachments, and early general elections illustrated internal political polarization.” Regarding Korea-U.S. tariff negotiations, it said, “Tariff and investment arrangements between Korea and the U.S., U.S.-China technological competition, and South Korea’s expanding role in semiconductor and defense supply chains are compounding trade and industrial-policy risks.”

The Ministry of Finance and Economy said it plans to make various efforts, including maintaining active communication with international credit rating agencies, so that South Korea’s solid sovereign credit standing can be preserved.