Concerns Over Further Deterioration of Domestic Economy as Wuhan Hits Amid Export Slump

Current Account Surplus Hits Lowest in 7 Years
Deteriorating Terms of Trade, Investment Contraction → Potential Decline in Production and Consumption
'New Coronavirus' Broad Impact on Goods and Services Balance

[Image source=Yonhap News]

[Asia Economy Reporters Eunbyeol Kim and Sehee Jang] On the 6th, the Bank of Korea announced provisional international balance of payments statistics showing that the current account surplus in 2019 decreased to its lowest level in seven years, raising concerns that the domestic economy could further deteriorate. Given Korea's economic structure with a high export ratio, a decrease in the current account surplus means worsening terms of trade, which can lead to a contraction in domestic consumption. This results in reduced investment capacity, leading to job losses → decreased production and consumption.

In particular, it is problematic that the current account surplus forecast for this year (56 billion USD) is difficult to achieve. The spread of the novel coronavirus infection (Wuhan pneumonia) inevitably affects the goods and services balance comprehensively. Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, said, "Recently, the suspension of factory operations in China could impact our export sectors such as processing and intermediary trade." He added, "The suspension or reduction of flights to China could negatively affect the travel and transportation balance," and "If restrictions on Chinese entry and exit are imposed, the travel balance could also be affected." Professor Shin Se-don of the Department of Economics at Sookmyung Women's University also said, "Although the government denies it, many economists see that export activity has declined compared to last year," and "We expect our country's exports to be further hit by the novel coronavirus."

The sharp decline in the current account surplus last year was ultimately influenced by semiconductor prices. The fixed transaction price of 8GB DRAM, which was around 6 USD at the beginning of last year, fell to the 2.9 USD range. External factors were also negative. Director Park explained, "With the end of the semiconductor supercycle (2016?2018), the semiconductor market showed significant weakness, and global economic slowdown due to trade conflicts, Brexit (the United Kingdom's withdrawal from the European Union), and the Hong Kong situation severely worsened our goods balance."

Imports also decreased by about 31 billion USD to 485.11 billion USD compared to the previous year. Although the decrease in imports was smaller than the export decrease (64.31 billion USD), concerns about a 'recession-type surplus' remain. The decline in oil prices lowered import unit prices, reducing the total import amount. The contraction in the semiconductor market also affected related investments such as machinery and equipment imports.

However, the improvement in the service balance, which had been eroding the current account, was a positive factor. The annual number of Chinese visitors last year was 6.02 million, a 25.8% increase from the previous year, and the total number of visitors also rose by 14.0%. Additionally, the boycott of Japanese products led to stagnation in domestic travelers to Japan, reducing the travel balance deficit. Last year, dividends and investment income received by companies from overseas local subsidiaries increased, with primary income balance (12.2 billion USD) reaching an all-time high, which was also a positive element. Director Park said, "As domestic companies actively expand overseas, the primary income balance recorded an all-time high," adding, "This is expected to help maintain our current account surplus."

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