The ferry sinking disaster will have a transitory effect on South Korean economy, which is gaining momentum in the longer term, the global credit rating company Moody's said Monday.
Moody's said in a report that the Sewol ferry disaster will have a transitory dampening effect on South Korea's domestic demand, noting that immediate constraints to growth will come from heavily indebted public-sector corporations and households.
The ferry Sewol capsized and sank off the southwestern coast on April 16, leaving more than 300 people, mostly high school students, dead or missing.
The maritime disaster dampened consumer confidence as deep grief swept the entire country. Consumers turned reluctant toward entertainment and travel during the nationwide mourning period.
Although its longer-term potential growth rate will face pressures, growth will likely to continue to outperform most high- income and advanced economies, both in the immediate term and further ahead, the rating appraiser said.
Moody's expected South Korea's real GDP to expand 3.5-4.0 percent this year and next thanks to policy reforms that will effectively mitigate downside growth risks.
The South Korean government is addressing near-term risks to growth from the rise in the public sector, Moody's said, noting that the authorities have also taken steps to deal with the massive household debts.
It added South Korea will effectively address such risks, which would enable the country to continue its economic breakout with a relatively high potential growth rate over the longer term.