The Bank of Korea Expects a Significant Current Account Surplus in September Due to Export Improvement (Comprehensive)

Bank of Korea 'August 2020 International Balance of Payments'

Current Account Surplus for 4 Consecutive Months
Import Decline Larger than Export Decline Due to Falling Crude Oil Prices

Containers are piled up at Busan Port's Sinsundae Pier. [Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] Despite the spread of the novel coronavirus infection (COVID-19), the current account balance recorded a surplus for the fourth consecutive month in August. In September, exports based on customs clearance also turned to an increasing trend for the first time since the COVID-19 outbreak, and the surplus in the current account balance is expected to expand further.

According to the "August 2020 Balance of Payments (Provisional)" announced by the Bank of Korea on the 8th, the current account balance recorded a surplus of 6.57 billion USD in August. The current account balance, which recorded a deficit in April, has continued a surplus streak for four consecutive months since May (+2.29 billion USD). However, the surplus in August was smaller than that of July (+7.45 billion USD). The July surplus was the largest in nine months since October 2019.

Exports still showed a declining trend. Exports in August amounted to 40.67 billion USD, decreasing for six consecutive months compared to the same month last year. The decline continued mainly in petroleum products and automobile parts, decreasing by 10.3% year-on-year. However, imports fell more sharply than exports. Due to weak energy prices, the decline continued mainly in raw materials. Imports in August were 33.65 billion USD, decreasing for six consecutive months year-on-year. As a result, the goods balance recorded a surplus of 7.01 billion USD, expanding by 2.38 billion USD compared to the same month last year.

Lee Seong-ho, head of the Financial Statistics Department at the Bank of Korea, said at a briefing, "According to the customs clearance-based export-import data for September, the trade balance, which is exports minus imports, was 8.88 billion USD, a very high level," adding, "Considering that the Bank of Korea's compiled goods balance is usually higher than the customs clearance-based trade balance, a significant surplus in the current account balance is expected in September." He further added, "Considering the cumulative current account surplus of 33.19 billion USD from January to August, achieving the annual forecast of 54 billion USD by the Research Department seems possible."

Park Dong-jun, head of the International Balance of Payments Team at the Bank of Korea, also said, "Following last month, the goods balance recorded a positive (+) year-on-year for two consecutive months, and exports based on customs clearance in September improved," adding, "This is having a positive impact on the balance of payments."

However, there are concerns that the surplus is a 'recession-type surplus' because the decline in imports was larger than that of exports. The Bank of Korea, however, views that the decrease in imports was not due to a shrinking economy but largely influenced by the drop in international oil prices. Lee explained, "Looking at the trend from January to August, imports of capital goods and consumer goods did not decrease, but raw materials dropped significantly," adding, "Since imports decreased due to falling international raw material prices, this is positive at least from the current account perspective." Park also said, "It is true that imports decreased more than exports, but since 70-80% of the recent import decline is due to the drop in crude oil prices, it is difficult to consider this a recession-type surplus."

The services balance recorded a deficit of 800 million USD, reducing the deficit to about half compared to the same month last year (-1.56 billion USD). The sharp decline in overseas departures due to the COVID-19 situation contributed to reducing the services balance deficit.

The travel balance deficit was 470 million USD, narrowing the deficit by 510 million USD compared to the same month last year. The transportation balance recorded a surplus of 390 million USD as air cargo transportation income increased. Compared to the same month last year (+40 million USD), the surplus expanded by 360 million USD.

The dividend income balance turned to a deficit, shrinking by 1.49 billion USD year-on-year. This was because dividend income from domestic companies' overseas subsidiaries decreased to 970 million USD compared to +2.61 billion USD in the same month last year. Therefore, the primary income balance recorded a surplus of 630 million USD, down 1.39 billion USD from +2.02 billion USD in the same month last year.

Meanwhile, overseas stock investment by domestic residents continued. In August, domestic residents' overseas stock investment amounted to 2.57 billion USD, increasing for 54 consecutive months since March 2016. Including bonds, domestic residents' overseas securities investment was 2.83 billion USD, increasing for five consecutive months.

Foreigners' domestic stock investment turned to a decrease (-240 million USD) for the first time in three months since May. Foreigners' domestic bond investment was 2.67 billion USD, increasing for eight consecutive months since January this year.

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