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Moody’s doubts a 2020 rebound

The rating agency says expectations of a quick recovery unrealistic
Nov 20,2019
Moody’s is pessimistic about Korean companies given the challenges they face as a result of trade uncertainties and a wobbly global economy.

“Our outlook is negative,” said Chris Park, associate managing director of corporate finance group, on Monday.

“The overall profitability of export-dependent companies deteriorated in 2019 due to a global economic slowdown, but their financial stability weakened as they continue to maintain sizable investment.

“There is a chance for improvement in 2020, but we believe the rate of improvement will likely be limited,” he said in a press conference held in Yeouido, western Seoul.

Of 24 Korean companies rated by Moody’s, 14 now have negative credit outlooks, he added.

This “reflects reduced financial buffers amid weak economic conditions, large committed investment or both,” Moody’s said in a press release.

The assessment challenged widely expressed expectations that conditions will improve next year ? especially in tech and semiconductors ? after a rough 2019, which was beset by low economic growth, low inflation and sluggish investment.

“The headwinds in global trade will outweigh the anticipated recovery in the industry,” said Sean Hwang, a Moody’s analyst, in a statement.

“Profitability in cyclical sectors will likely remain weak in 2020 despite a marginal improvement from 2019, as softening economic conditions will limit the extent of such improvement,” he adds.

“The ongoing trade tensions will also continue to cloud the earnings outlook for corporates, with the technology and chemical sectors most vulnerable.”

The credit-rating institution maintained its latest projection of Korea achieving 2.1 percent of GDP growth in 2020.

The forecast is lower than that of the Bank of Korea (BOK), at 2.3 percent, but still higher than the predictions by some multinational investment banks, with some forecasting growth below the 2.0 percent mark.

The central bank is scheduled to announce a revised economic forecast for both this year and next at the end of this month when a monetary policy meeting is held.

Bank of Korea Governor Lee Ju-yeol has made it public that the bank will likely revise down the previous projections, highlighting unfavorable economic conditions facing the economy.

Despite the downturn, analysts expect the bank to hold rates steady, since it already pushed down the rate twice this year.

BY PARK EUN-JEE, YONHAP [park.eunjee@joongang.co.kr]