Possibility of Consecutive Current Account Deficits in April and May... First Since European Debt Crisis

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] From April, the economic shock caused by the novel coronavirus infection (COVID-19) is expected to result in a current account deficit. The problem lies in May. There are forecasts that it will be difficult to guarantee a surplus in May depending on the export situation.

According to the Bank of Korea's Economic Statistics System on the 9th, the last time the current account recorded a deficit for two consecutive months was in January and February 2012. At that time, the current account posted a deficit as Korea's exports were directly hit by the European fiscal crisis. In January 2012, the current account deficit was $2.288 billion, and in February 2012, it was $2.584 billion.

This year as well, exports have been directly hit due to the worsening overseas economies in the US and Europe caused by COVID-19. According to the preliminary international balance of payments data for March released by the Bank of Korea on the 7th, the current account recorded a surplus of $6.23 billion in March. However, the goods balance was $7 billion, down $1.34 billion compared to a year earlier ($8.34 billion). The first quarter current account surplus was $13.61 billion, marking the 32nd consecutive quarter of surplus, but the goods balance ($15.34 billion) was the smallest in seven years since the first quarter of 2013.

Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, said, "Exports in April decreased by 24.3%, and the trade balance showed a deficit for the first time in 99 months, so the size of the goods balance surplus in April is expected to shrink significantly." He added, "Usually in April, dividend payments to foreign investors are concentrated, and since the goods balance surplus is greatly reduced and may even record a negative figure, the possibility of a current account deficit is very high."

However, Director Park added that since corporate earnings worsened last year, dividend payments tend to decrease compared to the previous year, and the rise in the exchange rate is a factor improving the primary income balance, so it is difficult to definitively predict the size of the current account.

The problem is May. Director Park said, "From May onward, the current account will be entirely dependent on how the trade balance performs," adding, "Since there is no clear sign of the global COVID-19 spread calming down, it could act in a way that worsens the trade balance."

Experts believe that although economic activities in the US, Europe, and other regions are gradually resuming from May, it will be difficult for exports to make a V-shaped rebound. The Korean government is also focusing on revitalizing the domestic economy under the assumption that a V-shaped rebound is unlikely. Kim Yong-beom, First Vice Minister of the Ministry of Economy and Finance, said at the macroeconomic and financial meeting on the 4th, "The full-scale shock such as real economy recession and unemployment is just beginning," and emphasized, "Strong economic quarantine measures are needed."

He described the current economic situation as "a situation with great uncertainty where views coexist that the global economy will rebound after a deep but short recession and pessimism that the prologue to a Greater Depression has begun." Risk factors include increased volatility in international oil prices, emerging countries with limited policy response capacity, and threats to globalization and free trade. The conflict between the US and China over responsibility for the spread of infectious diseases, which is showing signs of reemerging as a trade conflict, was also pointed out as a risk factor.

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