August Gyeongsang Balance of Payments Surplus for Four Consecutive Months but 'Recession-Type'... "September Surplus Expected to Expand" (Comprehensive)

Bank of Korea, August Preliminary Balance of Payments Statistics
4.81 Billion USD Surplus... Imports Decline More Than Exports
Israel-Hamas Conflict Causes Oil Price Variables and Current Account Impact

South Korea's current account recorded a surplus of $4.81 billion in August, continuing its surplus streak for four consecutive months. Although the surplus in the primary income account narrowed compared to the previous month, the goods account surplus expanded and the services account deficit shrank. However, this surplus is characterized as a 'recession-type surplus,' where imports declined more sharply than exports. The cumulative current account surplus up to August this year is less than half of the same period last year, indicating that economic uncertainty has yet to be resolved.

According to the preliminary balance of payments statistics released by the Bank of Korea on the 11th, the current account surplus in August was $4.81 billion. After recording a deficit of $790 million in April, the surplus continued for four months in May ($1.93 billion), June ($5.87 billion), and July ($3.74 billion). This marks the first time in 13 months since April to July last year that the current account has recorded a surplus for four consecutive months.

However, the cumulative current account surplus from January to August was $10.98 billion, shrinking by about 54% compared to $23.66 billion in the same period last year. By category, the goods account showed a surplus of $5.06 billion, marking five consecutive months of surplus since April, but this was due to imports declining more than exports.

Lee Dong-won, head of the Financial Statistics Department at the Bank of Korea, explained, "Although the customs-based surplus in the goods account narrowed compared to July, the actual amount transferred to shipowners increased compared to the export amount recorded at customs, resulting in a higher export value than the customs-based figure." He added, "Exports from overseas production, which are not reflected in customs exports, increased mainly due to new smartphones, causing the goods account surplus to grow compared to the previous month and reaching the largest scale since the $5.57 billion surplus in March last year."

Exports in August amounted to $53.75 billion, down 6.5% from the same month last year, while imports fell by 21% to $48.68 billion. Both the amount and rate of decrease were significantly higher for imports than exports. In exports, passenger cars (customs basis, 28.1%) continued to perform well, but products such as petroleum products (-35.1%) and semiconductors (-21.2%) showed poor performance, continuing a 12-month consecutive decline compared to the same month last year.

By region, exports increased to the Middle East (7%), the European Union (EU, 2.7%), and the United States (2.4%), but exports to China (-20%) and Latin America (-11%) declined sharply. Imports decreased for raw materials (-27.6%), capital goods (-16.2%), and consumer goods (-19.0%), marking six consecutive months of year-on-year decline.

Capital goods imports, including semiconductors (-21.3%) and information and communication devices (-27.2%), fell by 16.2%, while consumer goods imports, such as grains (-25.6%) and passenger cars (-37.4%), also shrank by 19.0%.

Goods Account Surplus for Five Consecutive Months, Services Account Deficit Shrinks

The services account recorded a deficit of $1.6 billion. Although the deficit narrowed compared to July (-$2.53 billion), it was larger than the deficit in the same month last year (-$1.29 billion). The travel account deficit slightly decreased to $1.14 billion from the previous month's $1.43 billion deficit, and the intellectual property rights account posted a surplus of $40 million. Lee said, "Compared to July, the number of outbound travelers decreased, and more foreign tourists from China, Japan, and Southeast Asia visited South Korea, slightly reducing the travel account deficit."

The primary income account recorded a surplus of $1.47 billion, mainly from interest income. However, the surplus narrowed compared to the previous month ($2.92 billion) and the same month last year ($2.59 billion). Dividend income from overseas subsidiaries of domestic companies decreased by $610 million, but dividend payments increased by $1.38 billion, reducing the primary income surplus compared to the previous month. Typically, domestic listed companies have a fiscal year-end in December, hold shareholder meetings after closing, and pay dividends in April. The largest dividend payments occur in April, with quarterly dividends in May, August, and November. The Bank of Korea explained that the increase in August dividends, mainly from the electronics and financial holding sectors, led to the narrowing of the surplus.

The net financial account (assets minus liabilities) increased by $5.73 billion in August. Direct investment saw an increase of $3.41 billion in outbound investment by domestic investors and $1.7 billion in inbound investment by foreigners. In securities investment, outbound investment by domestic investors increased by $3.05 billion, while inbound investment by foreigners decreased by $1.01 billion.

Possibility of Export Turning Positive in Q4... Annual Outlook Achievable

Regarding the current account outlook for September, Lee said, "Although the recent Israel-Palestine conflict has increased oil price uncertainty, both the international and domestic markets seem to view the possibility of prolonged conflict as low. While rising crude oil prices would increase import costs and negatively affect the current account, the decline in export contraction in August and September suggests a possibility of turning positive in the fourth quarter."

He also noted that the recent approval of U.S. equipment supply to major South Korean semiconductor factories in China is a positive factor for semiconductors. Lee stated, "The cumulative surplus from January to August is $10.98 billion, and the annual forecast is about $24.6 billion. If a monthly surplus of about $4 billion occurs from September to December, the annual forecast can be achieved. I expect the current account surplus in September to be larger than in August."

Although the current account surplus trend has continued for four months, experts believe that the recent sharp rise in international oil prices and unresolved economic uncertainties prevent optimism. Professor Ha Jun-kyung of Hanyang University's Department of Economics said, "Although exports have been sluggish, the surplus continues due to reduced imports caused by falling international oil prices. This situation is difficult to interpret as a positive signal for economic revitalization. Exports may improve if China's situation improves, but the high volatility of international oil prices creates significant uncertainty."

Professor Heo Jun-young of Sogang University's Department of Economics also commented, "Although China's economy and semiconductor exports are bottoming out and gradually improving, rising international oil prices due to the war increase import costs, offsetting gains. Even if exports improve in the second half, the recovery is expected to be slow, making this year effectively a 'high in the first half, low in the second half' scenario." He added, "The prolonged Russia-Ukraine war and economic struggles in China and Europe, excluding the U.S., are expected to have negative impacts on trade. South Korea is likely to be the country most severely affected."

[Image source=Yonhap News]

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