Due to Semiconductors... Last Year's Current Account Balance Hits 7-Year Low (Update)

[Asia Economy Reporter Kim Eun-byeol] Last year, semiconductor prices plummeted and the US-China trade conflict intensified, causing South Korea's annual current account balance to hit its lowest level in seven years. Although a surplus was recorded for the 22nd consecutive year, the surplus decreased by as much as $17.5 billion compared to the previous year. The current account balance has maintained a continuous surplus since the 1998 financial crisis.

According to the "December 2019 Balance of Payments (Provisional)" released by the Bank of Korea on the 6th, last year's current account balance was $59.97 billion, down $17.5 billion from the previous year. The sharp drop in semiconductor prices and the decline in global trade volume had an impact. As a result, the annual current account balance recorded its lowest level in seven years since $48.79 billion in 2012.

Exports, which amounted to $561.96 billion, turned negative (-10.3%) compared to the previous year. The main factors pulling down exports were the price decline of major items such as semiconductors, sluggish exports to China, and the global economic slowdown caused by the US-China trade conflict.

Imports also turned to a decrease compared to the previous year. Imports fell 6% year-on-year to $485.11 billion due to a drop in international oil prices and a reduction in capital goods imports such as semiconductor manufacturing equipment.

However, narrowing the scope to December, the current account balance for December was $4.33 billion, marking eight consecutive months of surplus since May last year. This was $580 million less than the November current account surplus of $4.91 billion. The decline in prices of major export items such as semiconductors (-32.5%), chemical products (-6.7%), and steel (-13.2%), along with contraction in manufacturing and global trade volume in December, were the causes.

Last year's annual service account deficit was $23.02 billion, ranking third largest ever. Although the service account deficit has been shrinking every year since the record high deficit of $36.73 billion in 2017, it remains significant.

Improvements in travel and transportation accounts contributed to reducing the deficit. The travel account recorded a deficit of $10.67 billion, and the transportation account recorded a deficit of $1.62 billion. In the case of the travel account, the number of inbound travelers increased significantly centered on China, while outbound travelers stagnated due to a sharp decline in trips to Japan following the Korea-Japan trade dispute.

Meanwhile, last year's primary income account recorded $12.2 billion, the largest ever. Among them, dividend income reached a record high of $22.68 billion. This was due to an increase in dividends received by domestic companies from their overseas local subsidiaries.

A Bank of Korea official explained, "The primary income account increased as funds invested directly overseas or in foreign bonds and stocks returned as dividends or interest income," adding, "As the current account surplus grows, attention is also turning to overseas investments."

This content was produced with the assistance of AI translation services.