Concerns Over 5 Consecutive Months of Trade Deficit... Ministry of Economy and Finance: "Trade Balance Is Deficit but Goods Balance Is Surplus"

Ministry of Economy and Finance: "Goods exports and imports should be judged based on the merchandise trade balance... Current account balance also maintains a surplus trend"

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Kwon Haeyoung] As the trade balance is expected to record a deficit for five consecutive months, the government has been emphasizing daily that the goods balance is in surplus. This highlights the favorable state of the Korean economy by mentioning the goods balance surplus amid growing concerns over the surge in energy imports and the slowdown in export growth.

On the 22nd, the Ministry of Economy and Finance distributed a press reference material titled 'Recent Trade Balance Trends' and stated that it is more appropriate to judge based on the goods balance rather than the trade balance regarding the export and import of goods.

The trade balance recorded deficits of -$2.4 billion in April, -$1.6 billion in May, -$2.5 billion in June, and -$4.8 billion in July this year, and from the 1st to the 20th of this month, it also posted a deficit of $10.2 billion, making a five-month consecutive deficit highly likely. On the other hand, the goods balance has been in surplus every month from January to June this year, recording a cumulative surplus of $20 billion in the first half of the year.

Both the goods balance and the trade balance are indicators showing exports and imports, but there is a difference in the aggregation method. The trade balance is based on goods, while the goods balance is based on the flow of funds, which leads to differences in aggregation methods. For example, products produced by a domestic company A at an overseas factory and exported to a third country are not reflected in the trade balance but are included as export amounts in the goods balance.

An official from the Ministry of Economy and Finance said, "Considering recent changes in the trade structure such as the expansion of overseas production exports by Korean companies, it is more appropriate to judge based on the goods balance regarding the export and import of goods." He added, "The recent trade balance deficit is mainly due to the rise in energy prices since the beginning of the year," and "major countries such as Japan and France are also commonly experiencing deterioration in their trade balances."

Furthermore, the official emphasized that the current account balance is a more useful indicator for comprehensively assessing the external soundness of the Korean economy, including foreign exchange supply and demand. The current account balance, which adds the service and capital transfer balances to the trade balance, recorded a cumulative surplus of $24.8 billion in the first half of the year. Except for April, it was in surplus every month.

The Ministry of Economy and Finance official said, "As the economy matures, it is common for dividends and interest income from expanded overseas investments to account for a larger share of the current account balance. In Korea, the primary income balance has been improving steadily since it turned to a surplus in 2011," adding, "The current account balance has maintained a relatively solid surplus trend until June due to the expansion of overseas production exports and the surplus in income balance." He continued, "The government plans to strengthen policy efforts to ensure that the external soundness of our economy remains at a favorable level by closely monitoring risk factors such as the possibility of a global economic slowdown."

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