[Weekly Review] Gyeongsang Current Account Surplus Recovers to 70 Billion USD Level After 2 Years

(Photo) [Image source=Yonhap News]

[Sejong=Asia Economy Reporter Joo Sang-don] Last year, South Korea's current account surplus recovered to the $70 billion level for the first time in two years. Despite the shock of the COVID-19 pandemic last year, it 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 significantly decreased due to a sharp decline in overseas departures. On a monthly basis, the current account surplus exceeded $10 billion in December last year for the first time in two months.

According to the "December 2020 Balance of Payments (Provisional)" announced 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 greatly exceeded the Bank of Korea's initial annual forecast of $65 billion.

Last year, exports amounted to $516.6 billion (-7.2%), and imports were $434.66 billion (-8.8%), with the decrease in imports being larger than 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 caused raw material import prices to fall sharply.

However, the Bank of Korea assessed that the reduction in imports due to the oil price drop was not a "recession-type surplus," where domestic demand shrinks and imports decrease more sharply than exports. 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 see this as a recession-type surplus."

◆ Additional Budget in Q1 This Year... Estimated at '30 Trillion Won + α' = The ruling Democratic Party and the government have formalized discussions on the 4th disaster relief fund due to the prolonged COVID-19 pandemic, making the formation of an additional supplementary budget (추경) in the first quarter inevitable. Both Lee Nak-yeon, leader of the Democratic Party, and Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, have expressed their intention to discuss the supplementary budget, so there is no disagreement on the formation itself. If the ruling party and government decide on the supplementary budget by next month, it will be the second time in history to form a supplementary budget in the first quarter for two consecutive years. However, with estimates that the disaster relief fund will be at least 30 trillion won, there are clear differences between the ruling party, which emphasizes universal support, and the government, which stresses selective support, so there are expected to be difficulties in discussions over the scale and targets.

According to the ruling party and government on the 3rd, the government began reviewing the payment targets, scale, necessity, and supplementary budget funding plans immediately after the ruling party formalized the 4th disaster relief fund payment.

The government believes that since a large amount of contingency funds were used for the 3rd disaster relief fund decided at the end of last year, it will have no choice but to incur national debt for the 4th. The government has already used 4.8 trillion won of this year's earmarked contingency funds for the 3rd disaster relief fund, and the remaining contingency funds are about 2 trillion won. A senior government official said, "Due to insufficient available funds, we have no choice but to issue government bonds," adding, "We will carefully examine whether there are blind spots or groups needing additional support during the payment process of the 1st to 3rd disaster relief funds."

The payment scale is expected to be "30 trillion won + α." Since the damage has accumulated due to the prolonged COVID-19 pandemic, there is also a forecast that it could exceed the 3rd supplementary budget last year, which was the largest ever at 35.3 trillion won.

◆ Apple Consent Decision... First Inclusion of Direct Consumer Benefits = On the 3rd, Cho Sung-wook, Chairman of the Korea Fair Trade Commission, emphasized, "The Apple Korea consent decision includes, for the first time, measures that provide direct benefits to consumers, such as a 10% discount on paid repair costs."

On the same day, Chairman Cho announced this during a briefing on the "Final Confirmation of Apple Korea Consent Decision."

Since 2016, the Fair Trade Commission has been investigating and deliberating on Apple’s actions including: receiving advertising fees and warranty repair promotion costs from mobile carriers; setting conditions for free patent licenses and unilateral contract termination clauses with carriers; and interfering in carriers' device retail price decisions and advertising activities. During this process, Apple applied for a consent decision in June 2019, and after two rounds of deliberations, the Fair Trade Commission initiated the consent decision procedure in June 2020. Subsequently, through stakeholder and related ministry consultations and discussions with the prosecution, the final consent decision was submitted in November of the same year and finalized on the 27th of last month.

The corrective measures include: excluding some from the scope of advertising funds; deleting warranty repair promotion costs and discretionary contract termination clauses; introducing a mutual mechanism to prevent patent disputes; and adjusting minimum subsidies.

The coexistence plan includes establishing a fund worth about 100 billion won to support: the establishment of a manufacturing R&D support center; developer academy; digital device support in public education; and discounts on paid repairs and AppleCare+ for Apple devices.

◆ Agricultural and Livestock Products Soar 10%... Consumer Prices Remain in 0% Range for 4 Months = Due to the spread of avian influenza (AI), the consumer price inflation rate for livestock products such as eggs recorded the highest in six years.

According to the "January 2020 Consumer Price Trends" announced by Statistics Korea on the 2nd, egg prices rose by 15.2%, and domestic beef by 10.0%, leading the grocery basket prices. The consumer price inflation rate for livestock products was 11.5%, the highest in over six years since June 2014 when it recorded 12.6%.

The price of agricultural, livestock, and fishery products combined rose by 10.0%. This is analyzed to be due to increased demand for agricultural products amid social distancing measures in a situation of poor crop yields. Green onions surged 76.9%, onions 60.3%, and apples (45.5%) and red pepper powder (34.4%) also showed high increases. The "fresh food index," calculated based on 50 items including fish, shellfish, vegetables, and fruits whose prices fluctuate greatly depending on weather conditions, jumped 9.2% compared to the same month last year. Although the increase slowed compared to last month (10.0%), it remains at a high level.

Last month, the consumer price index was 106.47, rising 0.6% (year-on-year), marking the fourth consecutive month of 0% range increases since October last year. The consumer price inflation rate was in the 1.0% range in September last year but dropped sharply to 0.1% in October. It then recorded 0.6% and 0.5% in November and December, respectively.

◆ Yoo Myung-hee Withdraws from WTO Director-General Candidacy = Yoo Myung-hee, head of the Trade Negotiations Division at the Ministry of Trade, Industry and Energy, has withdrawn her candidacy for the next Director-General of the World Trade Organization (WTO). She aimed for an "upset" against the Nigerian candidate supported by China and Europe with the backing of the former Trump administration of the U.S., but with the inauguration of the Joe Biden administration, the tide changed, leading to her final decision to withdraw.

Yoo plans to notify the WTO of her withdrawal from the Director-General candidacy on the 5th.

The WTO conducted three rounds of consultations among member countries in the second half of last year to select the Director-General. Initially, Nigerian candidate Ngozi Okonjo-Iweala was expected to win easily, having secured support from over 100 of the 163 member countries. However, the former Trump administration's support for Yoo Myung-hee changed the dynamics, and the Director-General election process was temporarily suspended. Since all WTO decisions require unanimous consent among member countries, if any country opposes, the appointment of the Director-General is impossible.

Meanwhile, with Joe Biden, who emphasizes multilateralism, elected as U.S. president, the situation shifted. Yoo's delay in withdrawing her candidacy became a burden not only for herself but also for South Korean diplomacy.

The Ministry of Trade, Industry and Energy stated, "Yoo has been consulting with major countries including the U.S. to build consensus among WTO members on the next Director-General," adding, "Considering various issues including the need to revitalize WTO functions, she decided to withdraw her candidacy."

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