Raw Material Risks Surpassing Export Boom... Growing Concerns Over Twin Deficits (Comprehensive)

Negative Impact of Global Energy Price Surge
Cumulative Deficit Exceeds $5.2 Billion from January to the 10th of This Month
If the Russia-Ukraine Conflict Prolongs
Trade Balance Deterioration Expected to Continue for a While

Fiscal Deficit in Deficit for 3 Consecutive Years
Additional Spending Planned, Expanding to 70 Trillion Won

[Image source=Yonhap News]

[Asia Economy reporters Seo So-jeong and Lee Dong-woo in Sejong] As trade, the growth engine of our economy, falters, concerns are growing over a 'twin deficit' with both the fiscal balance and current account balance recording deficits.

The trade balance, which accounts for most of the current account, saw its deficit widen to about $1.4 billion in March due to increased import costs driven by soaring raw material prices. Additionally, the current account surplus in January this year shrank by nearly $5 billion compared to the same month last year, raising the possibility of a deficit. The fiscal balance has been in deficit for three consecutive years since 2019, and with additional spending planned after the presidential election, the deficit is expected to surge to at least 70 trillion won this year.

According to the Korea Customs Service on the 11th, the cumulative deficit from January to the 10th of this month has exceeded $5.29 billion. Although exports have been strong, imports have increased more sharply due to rising international oil and energy prices.

The sharp rise in imports is attributed to the prolonged Russia-Ukraine conflict, which has sustained the surge in energy prices. In fact, among the top 10 imported items this month, energy-related imports such as gas (87.0%), petroleum products (46.3%), crude oil (43.6%), and coal (57.3%) have increased significantly.

Exports have also performed well, showing an increase for 16 consecutive months from November 2020 through last month. However, if the Russia-Ukraine conflict continues, the deterioration of the trade balance may persist for some time. Kim Tae-gi, former professor of economics at Dankook University, expressed concern, stating, "If economic sanctions against Russia are prolonged, raw material prices will surge, raising production costs, which will ultimately be a major factor in domestic economic recession."

According to the Bank of Korea's preliminary international balance of payments statistics for 2022 released on this day, South Korea's current account surplus in January this year was $1.81 billion, sharply down by nearly $5 billion compared to the same month last year. Although it recorded a surplus for 21 consecutive months, it significantly decreased compared to January last year ($6.78 billion) and also declined from December last year ($6.06 billion). This was due to a significant increase in imports of energy products such as crude oil, despite favorable export trends.

Kim Young-hwan, head of the Bank of Korea's Financial Statistics Department, explained, "The goods balance surplus decreased by $4.9 billion compared to the same month last year, resulting in only $670 million. Imports of energy products in January reached $18.15 billion, a 121.8% increase compared to the same month last year, marking an all-time high." Due to rising raw material prices, the import growth rate has exceeded the export growth rate, reducing the current account surplus and raising the possibility of a future current account deficit.

The trade balance also recorded consecutive deficits in December last year and January this year due to rising international energy prices. This two-month consecutive trade deficit was the first in 14 years since the financial crisis in 2008.

Kim added, "It is difficult to predict the direction of the current account in February at this point, but despite various concerns, the trade balance recorded a surplus of $840 million in February, which is positive," and said, "We plan to closely examine additional data."

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