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Japan dispute will undermine Korea: Moodys

Aug 27,2019
The international credit rating agency Moody’s on Monday released a report that said the Korean economy will be undermined by the intensifying trade dispute with Japan.

“The trade dispute further undermines Korea’s near-term growth prospect,” the Moody’s report said, noting that Japan will be officially removing Korea from its “white list” of countries that receive preferential export treatment on Aug. 28. “This escalation is likely to weigh on Korea’s manufacturing sector.”

Moody’s forecast that Korea’s economy will grow by 2 percent, despite the government fiscal measures that include a 5.83 trillion won ($4.8 billion) supplementary budget, including 273.2 billion won to be used to counter Japan’s export restrictions.

“[This year’s growth and next year’s forecast at 2.1 percent is] significantly lower than the 3 percent average annual growth of the last five years,” the credit rating agency’s report stated.

The Moody’s report said the recent “fallout” will have a negative impact on the Japanese economy but added that it will be at a smaller degree.

Moody’s speculated that the Korean consumer boycott against Japanese products and tourism as well as trade in intermediate goods “poses a larger threat to the Japanese economy.”

It added that the scheduled increase in Japan’s consumption tax from 8 percent to 10 percent next month will add to the burden on economic growth.

“However, a portion of the tax increase will be offset by higher fiscal spending including additional support to low-income households, tax benefits for the purchase of cars and houses and public investment measures,” Moody’s report noted.

It projected Japan’s economy will grow 0.7 percent this year and 0.4 percent next year.

Tensions further heightened last week despite the Japanese government twice approving the export of extra ultraviolet photoresists, one of the three key materials that have been restricted since July, as the Korean government decided to pull out of the joint military intelligence-sharing pact enacted in 2016.

Although experts agree that Korea’s decision not to renew the General Security of Military Information Agreement (Gsomia) will not have a major impact on Korea’s security, some have raised the possibility of Japan further increasing its trade retaliations as a result.

Japan may choose to narrow its targets to intermediary goods that are vital to Korea’s new growth engines such as carbon fiber.

The three key materials that have been restricted since last month were those vital to manufacturing semiconductor chips and displays.

Korean Finance Minister Hong Nam-ki said the Korean government will work in minimizing the aftermath of the Gsomia withdrawal on Friday.

“Due to the measure, it will likely be difficult to resolve Japan’s export restrictions through dialogue,” said Hong.

“We will make preparations to minimize losses to companies.”

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]