Current Account Deficit for Two Consecutive Months in 11 Years... Goods Balance Also in Deficit for 5 Months (Comprehensive)

February Current Account Deficit of $520 Million
BOK "Goods Balance Expected to Improve in March"

In February of this year, the current account balance recorded a deficit for two consecutive months for the first time in 11 years. This was due to a decline in exports such as semiconductors amid a global economic slowdown, resulting in a goods balance deficit for five consecutive months, as well as an increase in overseas travel leading to a services balance deficit for 10 consecutive months.

According to the preliminary balance of payments data for February released by the Bank of Korea on the 7th, the domestic current account recorded a deficit of $520 million. This is a decrease of $6.38 billion compared to a surplus of $5.87 billion recorded a year earlier.

The current account recording a deficit for two consecutive months is the first time in 11 years since January-February 2012. At that time in 2012, following the global economic crisis, the world economy recovered, causing crude oil prices to rise and imports to increase. Additionally, the fiscal crisis in Southern Europe led to a slowdown in exports, resulting in two consecutive months of deficits.

The goods balance shifted from a surplus of $4.35 billion in the same month last year to a deficit of $1.3 billion.

The current account deficit narrowed by $3.69 billion compared to January

The current account turned to a deficit of -$2.9121 billion in August last year, then recorded a surplus of $2.089 billion in September. It maintained a surplus for two consecutive months in October with $1.6297 billion, avoiding a deficit, but returned to a deficit of -$222.8 million in November before switching back to a surplus in December.

In January this year, the current account recorded a deficit of $4.21 billion, the largest ever since statistics compilation began in 1980, turning back to a deficit, and continued the deficit in February. However, the deficit in February decreased by $3.69 billion compared to the record high deficit of $4.21 billion in January.

By detailed items, the goods balance showed a deficit for five consecutive months. It turned to a deficit with a sharp decrease of $5.65 billion compared to the same month last year.

Exports amounted to $50.52 billion, down $3.38 billion (6.3%) compared to the same month last year. Exports have declined for six consecutive months due to the global economic slowdown, with decreases in semiconductors and chemical products. In particular, semiconductors (customs basis -41.5%), chemical products (-9.8%), and steel products (-9.2%) showed weakness. By region, exports to Southeast Asia (-25%), China (-24.3%), and Japan (-5.4%) contracted.

Imports totaled $51.82 billion, up $2.27 billion (4.6%) compared to the same month last year. Imports saw a decrease in capital goods and consumer goods, while raw materials increased. Raw material imports rose 7.2% compared to the same month last year, with gas and chemical products increasing by 72.5% and 10.0%, respectively.

Services balance records deficit for 10 consecutive months

The services balance recorded a deficit of $2.03 billion. It turned to a deficit with a decrease of $2.12 billion compared to the same month last year. The deficit has continued for 10 consecutive months since May last year. The transportation balance recorded a deficit of $220 million, turning to a deficit with a decrease of $1.64 billion compared to the same month last year. This was largely influenced by an 80% drop in the Shanghai Containerized Freight Index (SCFI) in February compared to the same period.

The travel balance deficit widened by $580 million to $1.01 billion due to an increase in overseas travelers. Although overseas travel has increased following the easing of COVID-19 restrictions, the inflow of Chinese tourists has not yet fully materialized.

The primary income balance recorded a surplus of $3.12 billion, increasing its surplus by $1.56 billion compared to the same month last year. Among the primary income balance, the dividend income surplus ($2.35 billion) increased by $1.62 billion over one year. Lee Dong-won, head of the Financial Statistics Department at the Bank of Korea, said, "Although the scale of the primary income balance has decreased compared to January, it still continues to show a surplus," adding, "Looking at the entire year, monthly volatility is expected, but the impact of the government's corporate tax reform will persist throughout the year, and the demand for facility investment funds from major domestic companies remains, so the primary income balance will definitely improve." He explained that the increase in surplus is due to major domestic companies having facility investment demand and receiving overseas profits earned by their overseas local subsidiaries in the form of dividends for those investments.

Primary income surplus expands due to corporate tax reform

Since January this year, the government has changed the corporate tax system so that if companies pay taxes locally on income earned overseas, they are not taxed domestically. As a result, cases of overseas subsidiaries of companies like Samsung Electronics paying dividends to their domestic headquarters have increased, expanding the primary income surplus. Lee said, "Dividend income averaged $16.64 billion per month from 2014 to 2020 and increased to $39 billion during 2021-2022," forecasting, "It could increase even more in the future."

The net financial assets, calculated by subtracting liabilities from assets, increased by $1.19 billion. In direct investment, domestic investors' overseas investment increased by $3.66 billion, and foreign investors' domestic investment increased by $360 million. In securities investment, domestic investors' overseas investment increased by $2.48 billion, and foreign investors' domestic investment increased by $1.45 billion.

Regarding the current account outlook for March, Lee said, "There are both positive and negative factors at a balanced level for the March current account," and predicted, "Since the customs-based trade deficit in March is expected to be $4.62 billion, down from $5.27 billion in February, the goods balance in March should improve."

However, Lee explained, "The problem lies in the services balance. Although Chinese group tourists are not entering, the increase in tourists mainly from Japan and Southeast Asia is positive," but added, "On the other hand, the decline in freight rates may worsen the transportation balance, which is negative." He further noted, "The primary income balance is not a trend indicator, so while it may increase significantly over the entire year, it is difficult to predict by how much."

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