March Current Account Surplus Falls by $770 Million YoY... Twin Deficits Imminent (Comprehensive)

Current Account Surplus of $6.73 Billion
23 Consecutive Months of Surplus but
Possibility of Deficit in April

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] Concerns are growing that South Korea's current account balance could temporarily turn into a deficit in April as the surplus in the goods balance narrows due to a sharp rise in raw material import prices.

Although exports performed well and maintained a surplus trend until March, there is a possibility of a deficit in April as dividend payments from December fiscal year-end corporations abroad are concentrated. The fiscal balance, an indicator of the nation's financial health, is also worsening, creating an atmosphere where a 'twin deficit' could become a reality.

According to the preliminary balance of payments statistics released by the Bank of Korea on the 10th, the current account surplus for March was $6.73 billion (approximately 8.6 trillion KRW). This marks the 23rd consecutive month of surplus since May 2020, but the surplus amount decreased by $770 million compared to the same month last year ($7.5 billion).

This is because, although exports showed strong performance, the increase in imports, mainly raw materials, was larger. The goods balance surplus was $5.31 billion, down $2.54 billion from the same month last year. Exports recorded $64.51 billion, up 16.9% due to strong performance in major items such as petroleum products and semiconductors, but imports rose 25.1% to $59.2 billion, which had a significant impact.

In particular, based on March customs clearance data, raw material imports surged 52.3% compared to the same month last year. As a result, the current account surplus for the first quarter of this year (cumulative January to March) was $15.06 billion, a decrease of $7.27 billion compared to the first quarter of last year.

The increase in dividend payments by foreign-invested companies also reduced the surplus in the primary income account, contributing to the narrowing of the current account surplus. The primary income account recorded a surplus of $1.15 billion, but the surplus amount decreased by $140 million over one year due to increased dividend payments by foreign-invested corporations.

On the bright side, the service account, which had been a deficit factor, recorded a surplus for the third consecutive quarter due to improvements in the transportation account, which is a positive factor for the future current account trend. The service account turned from a deficit of $1.15 billion in the same month last year to a surplus of $360 million, supported by the transportation account's improvement.

The net financial account (assets minus liabilities) increased by $5.37 billion in March. In direct investment, domestic investors' overseas investment increased by $9.11 billion, and foreign investors' domestic investment also rose by $2.84 billion. In securities investment, domestic investors' overseas investment increased by $6.58 billion, but foreign investors' domestic securities investment decreased by $2.27 billion.

The problem lies in April. Dividend payments to foreign investors are concentrated, and the Ukraine crisis is also beginning to have a full impact, raising the possibility that the current account could temporarily turn into a deficit.

Hwang Sang-pil, Director of the Economic Statistics Bureau at the Bank of Korea, said, "We saw a trade deficit of $2.66 billion based on last month's customs clearance data, and with concentrated dividend payments from December fiscal year-end corporations, we cannot rule out the possibility of a temporary deficit reversal," adding, "However, exports are steadily increasing, so the surplus trend is expected to continue in the long term."

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