Current Account Surplus Recovers to Over $70 Billion After 2 Years... Kim Yong-beom Calls It an Economic Safety Net Amid COVID-19 Crisis (Comprehensive Report 2)

Bank of Korea Announces 'December 2020 Balance of Payments (Preliminary)'
Combined Effects of Low Oil Prices, Exports, and Travel Bans
Current Account Surplus Likely to Shrink Compared to Last Year, Government Says "Surplus Trend Maintained"

[Asia Economy Reporter Kim Eun-byeol] Last year, South Korea's current account surplus recovered to the $70 billion level for the first time in two years. Despite the impact of the COVID-19 pandemic last year, the surplus increased by more than $15 billion compared to the previous year. This was due to a sharp drop in oil prices leading to a significant reduction in imports, and a rapid recovery in exports centered on semiconductors from the second half of the year. The deficit in the service account, which has been in the red for years, also shrank significantly as overseas departures plummeted. On a monthly basis, the current account surplus in December last year exceeded $10 billion for the first time in two months.

According to the "December 2020 Balance of Payments (Provisional)" released by the Bank of Korea on the 5th, last year's current account surplus recorded $75.28 billion. The surplus expanded by $15.6 billion compared to the previous year. The surplus size also far exceeded the Bank of Korea's initial annual forecast of $65 billion.

Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, stated, "Despite the economic crisis, the surplus exceeded expectations," adding, "The reduction in overseas travel and the drop in oil prices, along with the industrial structure related to non-face-to-face economic activities (semiconductors and COVID-19 diagnostic kits), also played a role." He continued, "Companies quickly responded to new areas such as air transportation, and effective quarantine measures helped maintain favorable production conditions, which was another factor."

The government also gave a positive evaluation. Kim Yong-beom, First Vice Minister of the Ministry of Economy and Finance, held an Innovation Growth Strategy Review and Policy Review Meeting at the Government Seoul Office on the same day, emphasizing, "In the unprecedented crisis, the external competitiveness of goods and services played a crucial role as a safety net for our economy."

Park Yang-su, Director of the Economic Statistics Bureau at the Bank of Korea, is explaining the main features of the December 2020 balance of payments (provisional) at the Bank of Korea in Jung-gu, Seoul, on the morning of the 5th.

Low Oil Prices + Export Recovery in the Second Half Boosted Goods Surplus

Despite the COVID-19 economic crisis last year, the background for achieving a current account surplus in the $70 billion range was low oil prices and exports. Although both exports and imports decreased, the sharp drop in international oil prices caused the decline in imports to be larger than that of exports, expanding the goods account surplus. The rapid recovery in goods exports such as semiconductors, information and communications, and chemical products in the second half of the year was also a key factor behind the surplus exceeding expectations.

According to the "December 2020 Balance of Payments (Provisional)" released by the Bank of Korea on the 5th, last year's exports recorded $516.6 billion (-7.2%) and imports $434.66 billion (-8.8%), with the decrease in imports exceeding that of exports. This was influenced by the global demand decline due to the COVID-19 shock and the international oil price sliding to the $40 range, which significantly lowered raw material import prices.

However, the Bank of Korea assessed that the surplus was not a "recession-type surplus," where imports shrink more than exports due to domestic demand contraction caused by the drop in oil prices. Director Park said, "Capital goods imports increased by 7.4%, centered on semiconductor equipment, and consumer goods imports continued steadily, so it is difficult to view this as a recession-type surplus."

Exports, which sharply declined in the first half of last year, turned to an upward trend in the second half. By item, exports of semiconductors (12.6%), home appliances (18.0%), secondary batteries (8.2%), and automobiles (1.4%) all increased. The export growth rate of bio-health products reached 70.5% compared to the same period last year. Director Park stated, "In the first half, both goods and current accounts deteriorated simultaneously, and the foreign exchange market tended to become unstable, causing a sense of crisis, but overall improvement was seen from the second half."

COVID-19 Travel Restrictions Had a Positive Impact on Our Current Account... Overseas Stock Investment Hits Record High

The deficit in the service account significantly decreased. This was due to a sharp drop in people traveling abroad because of COVID-19 and increased freight rates. The service account deficit shrank by $10.66 billion compared to the previous year, recording $16.19 billion. Travel restrictions actually had a positive effect on our current account. Although revenue from air passengers decreased, transportation demand increased, turning the transportation account ($2.13 billion) into a surplus for the first time in five years.

This year, the current account surplus is expected to shrink compared to last year. The Ministry of Economy and Finance stated in the "Current Account Trends and Evaluation" released on the same day, "This year, the current account surplus is likely to narrow somewhat due to domestic demand activation and oil price recovery." The Bank of Korea had forecasted a $60 billion current account surplus for this year in November last year.

Meanwhile, buoyed by last year's stock market boom, annual overseas stock investment by domestic investors reached a record high of $56.33 billion. Foreigners' domestic stock investment turned negative (-$15.8 billion), while foreign investment in domestic bonds was $32.85 billion, the second highest ever.

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