First Half Current Account Surplus Hits Five-Year High... Annual Target Exceeds 80 Billion USD (Comprehensive)

[Asia Economy Reporter Kim Eun-byeol] As the global economy recovers from the impact of COVID-19, South Korea's current account surplus in the first half of the year posted its largest gain in five years. Compared to the first half of last year, when the COVID-19 shock was severe, it increased by 2.3 times (133%), marking the third-largest surplus on record for the first half of the year. Since last year, with the export recovery continuing, South Korea's current account has recorded a surplus for 14 consecutive months. Domestic investors' overseas stock investments increased by $39.47 billion in the first half, showing the largest increase ever.

First Half Current Account Surplus Largest in 5 Years... Third Largest on Record

According to the Bank of Korea's announcement of the "June and First Half Balance of Payments (Preliminary)" on the 6th, the current account surplus for the first half of this year was $44.34 billion (approximately 50.67 trillion KRW), an increase of $25.3 billion compared to the first half of last year ($19.04 billion). This is the third-largest surplus on record for the first half, following the first half of 2016 ($53.45 billion) and 2015 ($49.7 billion).

The surplus factor is exports. Exports in the first half reached $301.79 billion, up 26.6% ($63.39 billion) from the same period last year ($238.4 billion). Due to rising raw material prices, expanded exports and facility investments, and improved consumer sentiment, imports of raw materials (25.5%), capital goods (22.9%), and consumer goods (22.7%) also increased. Imports in the first half totaled $263.62 billion, up 23.6% ($50.35 billion) from the first half of last year. The trade balance, which is the difference between exports and imports, recorded a surplus of $38.17 billion, expanding the surplus by $13.04 billion compared to the same period last year.

Along with economic recovery, the sharp increase in freight transportation income reduced the service deficit. The service account deficit in the first half was $2.9 billion, narrowing the deficit by $6.69 billion compared to the same period last year. The transportation balance posted a surplus of $5.81 billion, turning positive compared to the previous year and recording the largest surplus ever. On a monthly basis, the current account surplus in June was $8.85 billion, marking 14 consecutive months of surplus.

During the same period, domestic investors' overseas stock investments increased by $39.47 billion, showing the largest increase ever. This surpassed the $28.48 billion recorded in the first half of last year, resulting from a stock market boom where not only individuals but also non-financial corporations invested in overseas stocks. On the other hand, foreigners realized gains on domestic stocks and withdrew $13.58 billion in the first half. Instead, foreigners' domestic bond investments increased by $46.42 billion, marking the largest increase ever. Domestic bonds were attractive due to their stability and relatively high yields.

Annual Current Account Surplus Expected Around $80 Billion

With exports recovering faster than expected and the first half current account surplus posting the largest gain in five years, there is growing confidence that the annual current account surplus will reach around $80 billion. If the annual surplus exceeds $80 billion, it will be the largest surplus since 2016 ($97.92 billion). However, the spread and strength of the COVID-19 Delta variant globally, and whether countries will impose lockdowns like last year due to the Delta variant, are expected to be variables in the second half. The sharp rise in raw material prices, which is increasing imports, is also a factor that could affect the current account.

Hwang Sang-pil, Director of the Economic Statistics Department at the Bank of Korea, is explaining the main features of the June 2021 balance of payments (provisional) at the Bank of Korea in Jung-gu, Seoul, on the morning of the 6th.

Hwang Sang-pil, Director of the Economic Statistics Bureau at the Bank of Korea, said at the balance of payments press briefing on the day, "The current account surplus in the first half of this year was $44.34 billion, about $11 billion higher than the Bank of Korea's May forecast," adding, "If we simply add the second half current account surplus forecast ($37 billion), the annual surplus is expected to be around $81 billion."

The larger-than-expected current account surplus in the first half was due to a combination of factors, including not only exports, which form the foundation of our economy, but also increased transportation income from the global economic recovery and increased dividend income from overseas subsidiaries of companies.

Exports increased sharply across most items and regions. Looking at customs-based export-import data, exports of passenger cars and parts in the first half of this year were about $33.7 billion, up 47.8% compared to the same period last year. Chemical products (39.6%), steel products (28.7%), and semiconductors (21.2%) also saw large export increases. Although there was a shortage of automotive semiconductor parts early this year, this is also showing signs of recovery. Exports to most regions, including the European Union (EU), the United States, and China, also increased.

The surge in freight transportation demand due to the global economic recovery also positively affected South Korea's current account. As exports suddenly increased with the economic recovery, there were more cases of shipping cargo at high freight rates. The Shanghai Containerized Freight Index (SCFI) in the first half rose 232.2% compared to the same period last year. With freight transportation income sharply increasing, transportation income in the first half ($19.33 billion) rose 68% compared to the same period last year, and the transportation balance ($5.81 billion) turned positive from a deficit last year, recording the largest surplus ever.

Dividend income earned by domestic companies from overseas subsidiaries also increased. The dividend income balance in the first half was $6.51 billion, turning positive compared to the same period last year and marking the second-largest surplus ever. Director Hwang said, "Our economy showed good performance in various sectors," and added, "In the second half, our current account is expected to continue its surplus trend, supported by strong export momentum."

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