The Bank of Korea: "Trade Deficit to Continue for the Time Being... Current Account Volatility Also Increasing"

On the morning of the 11th of last month, container unloading operations were underway at Busan Port Sinsundae Pier. [Image source=Yonhap News]

The Bank of Korea forecasted that the trade balance deficit trend will continue for the time being due to the impact of the global economic slowdown. Regarding the current account balance, it explained that although a surplus trend will be maintained annually, volatility may increase due to significant uncertainties such as the Ukraine crisis.

On the 6th, the Bank of Korea explained this in the BOK Issue Note report titled "Review of the Causes and Sustainability of the Recent Trade Deficit," stating, "The trade balance, which had maintained a stable surplus trend since the financial crisis, has continued to show a deficit this year due to rising raw material prices."

The Bank of Korea analyzed that the recent deterioration in the trade balance was mostly due to rising import prices, with some contribution from a slowdown in export volumes caused by the economic downturn in China. From January to August this year, the trade balance decreased by $45.4 billion compared to the same period last year, with a $47.2 billion decrease due to price factors and a $1.8 billion increase due to volume factors.

It also explained that exports of mobile phones, displays, ships, and automobiles, which had significantly contributed to past trade surpluses, have continued to slow for a considerable period, and unlike during previous high oil price periods, deficits in the energy and mineral sectors have not been sufficiently offset.

The expansion of overseas production of key items such as automobiles, semiconductors, and smartphones also acted as a factor weakening the trade balance continuously. However, exports through local overseas production are not included in the trade balance, which is based on customs clearance, but are included in goods exports, a component of the current account balance, so the impact is partially offset in the current account.

The Bank of Korea predicted that the trade balance deficit trend will continue as the international oil price remains at a high level and the impact of the global economic slowdown becomes more pronounced.

If raw material prices stabilize, South Korea's trade balance will also improve. The Bank of Korea estimated that a $10 decrease in the annual average oil price would result in an annual improvement of about $9 billion in the trade balance.

Regarding the current account balance, despite the accumulation of trade deficits, it is expected to maintain a surplus trend on an annual basis due to increases in non-customs exports and a surplus in the primary income balance. However, due to increased external uncertainties such as the prolonged Russia-Ukraine war, volatility may expand on a monthly basis.

The Bank of Korea explained, "To stably maintain the surplus trend in the current account balance, even though the expansion of overseas production in key industries is inevitable given global trade conditions, it is necessary to strengthen the export competitiveness of domestic-based manufacturing through improving investment conditions and creating an innovation ecosystem."

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