Moody's Investors Service on Thursday downgraded its forecast of South Korea's economic growth for next year, citing weakening exports and sluggish domestic demand.
The global credit appraiser predicted the South Korean economy would expand 3.5-4.0 percent next year, compared with its earlier estimate of 4.5 percent made in September. Moody's had forecast the Korean economy to grow 3.5-4.5 percent this year.
"We expect Korea will grow below 4 percent in 2012 ... We've seen signs of a contraction in quarterly growth through this year," Thomas Byrne, the senior vice president at Moody's told reporters in Seoul.
The South Korean economy, Asia's fourth-largest, grew 3.4 percent on-year in the first and second quarters of this year, respectively, slowing from the 4.2 percent annual gain in the first quarter.
"Weakening investment sentiment and a further global economic slowdown is a scenario for next year, which means there'll be a challenge for exports," he said.
Byrne also noted that although Korea is experiencing "a modest recovery in asset quality and liquidity, a rising level of consumer debt in the domestic market" is a factor which concerns the shape of the banking system.
"If unemployment and the housing market worsen, it could have a bad impact on banks and increase their vulnerability," he said.
Local household debt amounted to 876.3 trillion won (US$825.1 billion) as of late June, emerging as a major headache for the economy.
Touching on South Korea's sovereign rating, he said Moody's will maintain its current "A1" status unless no serious inter-Korean conflicts flare up.
In April last year, Moody's upgraded Korea's sovereign debt rating from "A2" to "A1," citing its fast recovery from the 2008 financial crisis and sound fiscal health.