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Japan, Vietnam most exposed to credit impact of potential Korea conflict: Moody's

2017/10/07 10:00

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SEOUL, Oct. 7 (Yonhap) -- Excluding South Korea, Japan and Vietnam are the countries whose sovereign ratings are likely to be hit most by a potential military conflict on the Korean Peninsula, Moody's Investors Service said Saturday.

A possible conflict over North Korea's nuclear programs would have a strong impact on South Korea's credit rating, which is currently at Aa2 stable, Moody's said in a recent report.

Aside from the South, Japan, rated A1 stable, and Vietnam, B1 positive, are the most exposed sovereigns, it added.

"The broader implications for the U.S. (Aaa stable) and China (A1 stable) would be relatively limited. For the U.S., a sharp lift in military spending would add to and bring forward fiscal pressure, weighing on its fiscal metrics," said the ratings firm.

"By contrast, Japan's growth would likely slow markedly and this would jeopardize a durable stabilization in government debt."

   With Vietnam, supply chain disruption and the loss of exports to South Korea would weaken the Southeast Asian nation's credit profile. With an already elevated debt burden -- 52.6 percent of GDP in 2016 -- the Vietnamese government may not have the space to buffer the economic shock without a material weakening of its fiscal strength, the report said.

Tensions have heightened amid a war of words between the United States and North Korea over Pyongyang's nuclear and missile programs. The North conducted its sixth and most powerful nuclear test on Sept. 3.

According to Moody's, the credit implications of a conflict involving North Korea would be more limited for Singapore, which is rated Aaa stable, Hong Kong and Taiwan, both rated Aa2 stable, as they have the fiscal space to protect them against weaker exports to Korea.