Trade Balance in Deficit for the First Time in 10 Years and 3 Months... Current Account Plummets Due to Soaring Raw Material Prices

Bank of Korea July Balance of Payments (Preliminary) Announcement
Current Account Drops Sharply to $1.09 Billion
Goods Balance in Deficit for First Time in 10 Years... Imports Surge

On the morning of the 11th of last month, containers were piled up at the Shinsundae Pier yard in Busan Port. [Image source=Yonhap News]

Due to rising international raw material prices and sluggish exports to China, South Korea's goods balance recorded a deficit in July for the first time in 10 years and 3 months. As the goods balance turned negative, the current account balance also significantly decreased by more than $6.6 billion compared to the same month last year.

According to the "July Balance of Payments (Provisional)" released by the Bank of Korea on the 7th, the country's current account balance recorded a surplus of $1.09 billion. This is a decrease of $6.62 billion compared to the same month last year. The current account balance posted a deficit of $80 million in April, then increased its surplus to $3.86 billion in May and $5.61 billion in June, but it sharply declined again this month.

Within the current account, the goods balance recorded a deficit of $1.18 billion, a sharp drop of $6.73 billion compared to the same month last year. This is the first deficit since April 2012, 10 years and 3 months ago. During this period, exports increased by $3.79 billion (6.9%) to $59.05 billion, but imports surged by 21.2% to $60.23 billion, causing the goods balance to turn negative.

The Bank of Korea explained, "Exports increased for the 21st consecutive month compared to the same month last year, mainly due to petroleum products, but the growth rate narrowed due to sluggish exports to China. Imports increased for the 19th consecutive month due to a sharp rise in raw material imports and expansion in capital goods."

On the other hand, the services balance turned from a deficit of $280 million in the same month last year to a surplus of $340 million. This was influenced by an increase of $360 million each in transportation and travel balances compared to last year, as export freight rates remained high and the impact of COVID-19 diminished.

The primary income balance, which reflects inflows and outflows such as wages, dividends, and interest, was $2.27 billion, down $580 million compared to the same month last year. The secondary income balance also recorded a deficit of $340 million.

The net financial account, which is assets minus liabilities, increased by $180 million in July. In direct investment, domestic investors' overseas investments increased by $5.67 billion, and foreign investors' domestic investments increased by $2.26 billion. Domestic investors' overseas securities investments rose by $3.24 billion, and foreign investors' domestic securities investments expanded by $4.22 billion.

The Bank of Korea stated, "Foreign investors' domestic stock investments significantly reduced their decline due to improved investor sentiment amid expectations of the U.S. Federal Reserve (Fed) moderating its tightening pace. Bond investments continued to increase, mainly in long-term bonds such as government bonds."

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