Current Account Surplus Hits 8-Year Low in First Half... "Exceeds Forecasts, Passing Through Tunnel of Uncertainty" (Comprehensive)

Bank of Korea 'June 2020 Balance of Payments (Preliminary)'

Current Account Shows Strong Recovery in June... Largest Surplus in 8 Months

Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, is explaining the main features of the June 2020 balance of payments (provisional) on the morning of the 6th at the Bank of Korea in Jung-gu, Seoul.

[Asia Economy Reporter Kim Eun-byeol] The current account surplus in the first half of this year shrank to its lowest level in eight years due to the impact of the novel coronavirus disease (COVID-19). However, the current account showed signs of improvement in June, indicating that the shock concentrated in April and May due to COVID-19 has somewhat eased.

According to the Bank of Korea's announcement on the 6th, the current account surplus in the first half of this year was $19.17 billion, a decrease of about $3.46 billion compared to the first half of last year ($22.63 billion). This is the smallest surplus in eight years on a half-year basis since recording $9.65 billion in the first half of 2012. The year 2012 was marked by the European debt crisis and was also the year when companies like Samsung Electronics significantly expanded their overseas smartphone market share, causing the current account to jump to a higher level. Since then, the annual current account surplus has consistently exceeded $70 billion to $100 billion.

Main Cause: Export Hit... Service Account Deficit Shrinks, Surpassing Forecasts

The main factor reducing the current account surplus in the first half of this year was the export hit caused by the global trade slump. Exports in the first half amounted to $241.93 billion, down 13.1% compared to the same period last year. Exports were sluggish, especially in petroleum products, passenger cars, and auto parts. As oil prices fell, imports also decreased to $217.94 billion, down 9.8% year-on-year. The average crude oil import price in the first half was $48.0 per barrel, a 27.7% drop from $66.5 per barrel in the first half of last year. With both exports and imports declining, the goods account surplus in the first half was limited to $24.0 billion.

On the other hand, the service account deficit in the first half was $8.41 billion, the smallest deficit since the first half of 2016 ($7.79 billion deficit). This was due to a significant reduction in cross-border movement caused by COVID-19, resulting in a sharp decline in outbound travelers. The travel account deficit in the first half was $3.1 billion, the smallest deficit since the second half of 2014 ($2.2 billion deficit). The transportation account deficit was $230 million, narrowing by $670 million compared to the same period last year. Although global trade volume was sluggish, increased air freight income due to rising airfares had an impact. Transportation income in the first half was $11.38 billion, with the decrease limited compared to $13.22 billion in the first half of last year.

Thanks to improvements in the service account and others, the current account surplus in the first half, although the smallest in eight years, significantly exceeded the Bank of Korea's forecast of $17 billion. Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, stated, "Initially, the Bank of Korea's May economic outlook expected a deficit of around $7 billion in services, primary income, and secondary income in the first half, but the actual deficit was $4.8 billion. Additionally, June exports showed a smaller-than-expected decline and signs of recovery, resulting in the first half surplus exceeding the forecast ($17 billion) by more than $2 billion."

Strong Recovery in June Current Account... Exports to China Positive in June, to the U.S. in July

The monthly current account trend also shows a reduction in the COVID-19 impact. The current account surplus in June was $6.88 billion, the largest surplus in eight months since October 2019 ($7.83 billion). Compared to May's surplus of $2.29 billion, the surplus widened. June exports were $40.02 billion, marking the fourth consecutive month of year-on-year decline, but the rate of decline narrowed significantly from 28.2% in May to 9.3% in June. Imports also showed a moderated decline as capital goods and consumer goods imports increased despite weak energy prices. June imports were $34.15 billion, with the year-on-year decline narrowing from 24.8% in May to 9.8% in June. The service account deficit was $1.26 billion, a reduction compared to the $2.14 billion deficit in June last year. The travel account deficit shrank by about $700 million, from $1.13 billion in June last year to $420 million in June this year.

Director Park said, "Although export prices of semiconductors and petroleum products declined, exports to China turned positive, easing the year-on-year decline. In July, customs-based exports to the U.S. also turned positive, so the current account surplus trend is expected to be maintained with a rapid recovery." He added, "Although there are mixed upside and downside risks such as COVID-19 resurgence, U.S.-China trade tensions, and low oil prices, the annual current account forecast of $57 billion is expected to be achieved. While we cannot completely discard caution, we can say that we are coming out of the tunnel of uncertainty."

[Image source=Reuters Yonhap News]

Global Liquidity Drives Stock Market Surge... Domestic Individual Investors' Overseas Stock Investment Boom

Meanwhile, despite COVID-19, major countries' stock markets have performed well, and domestic investors' overseas stock investments have continued to increase. In June, domestic investors' overseas securities investment reached $4.76 billion, marking the third consecutive month of increase. Of this, overseas stock investment was $4.32 billion, showing a continuous increase for 52 months since March 2016. Foreign investors' domestic stock investment turned to an increase after four consecutive months of decline as investment sentiment recovered. Foreigners' domestic bond investment in June was $4.12 billion, increasing for six consecutive months.

On a half-year basis, domestic investors' overseas stock investment in the first half of this year was $25.35 billion, ranking third highest on record. The highest was in the second half of 2007 with $26.46 billion, and the second highest was the first half of 2007 with $26.1 billion. Conversely, foreign investors concentrated on domestic bonds in the first half of this year. Their bond investment amounted to $22.32 billion, the third largest increase on record. Director Park said, "In 2007, the government actively encouraged overseas investment, leading to a significant increase, but now, even without such encouragement, interest in overseas investment has grown, especially among individual investors. The successive stimulus policies in major countries and the rising stock markets have also been factors encouraging active overseas investment."

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