Moody's Ratings has confirmed South Korea's Aa2 issuer rating and kept the outlook at stable, underlining the country's economic breadth and institutional handling as central pillars underpinning the decision.
The rating agency projects that Korea's long-run growth will settle at about 2%, a pace in line with many advanced economies after decades of comparatively stronger expansion. It forecasts a subdued 1.0% growth rate for 2025, followed by an uptick to 1.8% in 2026. Moody's attributes the acceleration in 2026 in part to rising semiconductor exports amid the global AI-driven demand cycle.
At the same time, Moody's highlights a notable increase in public indebtedness. Government debt rose from 35% of GDP in 2019 to nearly 50% in 2025, and projections indicate it will surpass 60% by 2030. The agency links this trajectory to broader deficits caused by pandemic-era support and policy choices favoring growth-oriented spending.
Compounding the direct government debt increase are contingent liabilities stemming from state-owned enterprises. Moody's notes that non-financial public sector debt reached over 17% of GDP in 2024, up from 15% in 2021, adding an additional layer of fiscal exposure.
Geopolitical considerations also factor into the assessment. Moody's says that risks have broadened beyond traditional tensions with North Korea to encompass wider trade and investment dynamics. The agency observed that the 2024-25 martial law episode, impeachment and snap elections exposed "domestic institutional stress and polarization." These political developments are part of the risk calculus informing the stable outlook.
Despite these headwinds, Moody's judges Korea's credit metrics likely to remain resilient. The stable outlook reflects confidence that, even with challenges from an aging population and slower productivity gains, the country's fiscal and institutional profile will hold. Moody's left both the local and foreign currency ceilings unchanged at Aaa.
The agency set out conditions that could alter the rating. Upward pressure would come from policy actions that reverse fiscal deterioration and lift potential GDP growth. Conversely, a downgrade could result from further fiscal deterioration, a sustained slowdown in growth, or an escalation of political risks.
Summary
Moody's reaffirmed South Korea's Aa2 rating with a stable outlook, forecasting modest growth recovery by 2026 driven partly by semiconductor exports, while flagging rising government debt, contingent liabilities and broader geopolitical and domestic political stresses as material considerations.