Raw Material Import Prices Surge... Current Account Surplus Shrinks Again in February

[Asia Economy Sejong=Reporter Kim Hyewon] South Korea's current account balance continues its fragile surplus trend due to a sharp rise in raw material import prices. Concerns are growing that the so-called "twin deficit" crisis, where both the fiscal balance and current account balance deteriorate simultaneously, may become a reality.

According to the preliminary balance of payments statistics released by the Bank of Korea on the 8th, the current account surplus for February was recorded at $6.42 billion (approximately 7.8356 trillion KRW). This marks 22 consecutive months of surplus since May 2020, but the surplus amount decreased by $1.64 billion compared to the same period last year ($8.06 billion).

This is because, although exports performed well, the increase in imports?mainly raw materials?was larger. The goods balance surplus was $4.27 billion, down $1.59 billion from the previous year. Exports rose 19.1% to $53.87 billion, driven by strong performance in semiconductors and petroleum products, while imports increased 25.9% to $49.6 billion.

In particular, based on customs clearance in February, raw material imports surged 36.7% compared to the same month last year. Among raw materials, the import growth rates for coal, petroleum products, and crude oil were 171.7%, 67.1%, and 63.3%, respectively.

The current account surplus in February was supported by the transportation balance. The transportation balance surplus grew to $1.9 billion over the year, resulting in a service balance surplus of $570 million. The Shanghai Containerized Freight Index (SCFI) for February surged 73.0% compared to a year earlier, maintaining high export freight rates, which increased transportation income to $4.35 billion. As overseas travel recovered, the travel balance deficit widened to $450 million, larger than the $340 million deficit in February last year.

Monetary authorities are cautious about overinterpreting the possibility of a current account deficit this year, but with the trade balance posting deficits twice so far this year and the possibility of prolonged high oil prices, it is difficult to guarantee the continuation of the current account surplus trend.

The fiscal balance, an indicator of national financial health, has worsened significantly since the Moon Jae-in administration. If the current account deficit materializes as well, South Korea will record its first twin deficits in 25 years.

Kim Younghwan, head of the Financial Statistics Department at the Bank of Korea, explained, "The decrease in the current account surplus compared to the same month last year is due to a decline in the goods balance caused by rising import prices, despite favorable exports."

He added, "For a country like ours, which is highly dependent on overseas markets, rising oil prices worsen trade terms and negatively affect the current account. However, considering that the current account surplus was $16.6 billion, $48.8 billion, and $77.26 billion in 2011, 2012, and 2013 respectively?years when Dubai crude oil prices exceeded $100?it is necessary to closely monitor future current account trends."

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