SEOUL – Global credit rating agency Fitch Ratings has affirmed South Korea’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘AA-’ with a ‘Stable’ outlook.

The affirmation—the first major rating action for the country in 2026—reflects South Korea's robust external finance position, a recovery in exports led by the semiconductor sector, and stable macroeconomic performance despite lingering geopolitical and trade tensions.

Key Economic Indicators & Growth Outlook
Fitch projects South Korea’s GDP growth to rebound to 2.0% in 2026, up from 1.0% in the previous year. The agency identified net exports, particularly in the tech sector, as the primary engine for this recovery.

However, the agency adjusted the country's potential growth rate downward from 2.1% to 1.9%, citing a shrinking working-age population. To counter this structural challenge, Fitch noted the government’s aggressive investments in Artificial Intelligence (AI) and high-tech industries aimed at boosting national productivity.

Fiscal Health and Debt Management
While the 2026 budget shows an 8.1% increase in spending compared to 2025—driven by R&D and high-tech subsidies—Fitch expects the fiscal deficit to narrow.

Fiscal Deficit-to-GDP: Projected to improve from -2.3% in 2025 to -2.0% in 2026 due to recovering tax revenues.
Warning Label: Fitch warned that a persistent rise in government debt without a corresponding boost in potential growth could exert downward pressure on future credit ratings.

External Soundness and Currency
South Korea maintains its status as a net external creditor, with net external assets equivalent to 23.3% of GDP.

The Won: After facing depreciation pressures in 2025 due to increased outbound investment in U.S. equities, Fitch expects the Korean Won to see moderate appreciation through 2026–2027.
Household Debt: Although high compared to other developed economies, the debt-to-GDP ratio is on a gradual decline as authorities manage growth rates below nominal GDP growth.

Risks: Trade and Geopolitics
The report highlighted two primary "Risk Factors" that could cloud the outlook:

Trade Protectionism: Potential tariffs and trade disputes involving the United States.
Geopolitical Tension: Strengthened ties between North Korea, Russia, and China make short-term de-escalation on the Korean Peninsula unlikely, despite Seoul's diplomatic efforts.
"The affirmation of the 'AA-' rating reaffirms the international community's confidence in the fundamentals of the Korean economy," stated the Ministry of Economy and Finance. "The government will continue to communicate closely with global rating agencies to maintain our strong sovereign credit standing."

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