September Current Account Surplus for Five Consecutive Months... 'Recession-Type' Limits Remain (Comprehensive)

Current Account Surplus of $16.58 Billion from January to September
65% of Last Year's Same Period
BOK: "Semiconductor Market Recovery... Surplus Expected in October as Well"

South Korea's current account balance recorded a surplus of $5.42 billion in September, continuing a five-month streak of surpluses. Although the deficit in the services account widened compared to the previous month, the improvement in the goods account was driven by strong exports of passenger cars mainly to the United States and the European Union (EU), along with a recovery trend in semiconductors. However, the ongoing 'recession-type surplus,' where imports have decreased more sharply than exports, coupled with increased volatility in international oil prices due to the war between Israel and the Palestinian militant group Hamas, and a slower-than-expected recovery in the Chinese economy, remain variables for South Korea's future economic outlook.

Current Account Surplus of $5.4 Billion... Imports Declined More Than Exports

According to the preliminary balance of payments statistics released by the Bank of Korea on the 8th, South Korea's current account surplus in September was $5.42 billion. After recording a deficit of $790 million in April, the country posted surpluses of $1.93 billion in May, $5.87 billion in June, $3.74 billion in July, and $4.98 billion in August, maintaining a surplus trend for five consecutive months. This marks the first time in 14 months since March to July last year that the current account has recorded surpluses for five straight months.

However, the cumulative current account surplus from January to September was $16.58 billion, down about 35% from $25.75 billion during the same period last year. By category, the goods account showed a surplus of $7.42 billion, marking six consecutive months of surplus since April, but this was due to imports declining more than exports. Exports in September were $55.65 billion, down 2.4% year-on-year, while imports fell 14.3% to $48.23 billion. Both the amount and rate of decrease in imports significantly exceeded those of exports, sustaining the 'recession-type surplus' pattern.

Regarding exports, passenger cars (up 9.1%) continued to perform well, but semiconductors (-14.6%), chemical products (-7.3%), and petroleum products (-6.9%) underperformed compared to a year ago, extending a 13-month consecutive decline. However, the rate of decline in semiconductors and other items is gradually narrowing. Shin Seung-cheol, director of the Economic Statistics Bureau at the Bank of Korea, explained, "The semiconductor industry appears to have passed its bottom and entered a recovery phase."

By region, exports increased to the United States (up 8.5%) and the European Union (EU, up 6.5%), but exports to China (-17.6%), Southeast Asia (-7.4%), and Japan (-2.5%) were sluggish. Imports of raw materials decreased by 20.9% due to falling energy import prices. In particular, import declines for gas, coal, and crude oil were 63.1%, 37.0%, and 16.2%, respectively. Capital goods imports, including semiconductors (-21.4%) and transportation equipment (-5.4%), fell 12.2%, while consumer goods imports, such as grains (-30.3%), also shrank by 9%.

The services account recorded a deficit of $3.19 billion, more than double the $1.57 billion deficit in August. The travel account deficit narrowed to $970 million from $1.14 billion the previous month, while the intellectual property rights account turned to a deficit of $670 million. The deficit widened compared to a $450 million deficit in September last year. Director Shin noted, "In August, the Chinese government allowed domestic group tours, raising expectations for Chinese tourist arrivals, but September figures show that although the number of Chinese tourists was the highest of the year, it did not visibly increase. The number of arrivals is less than half of pre-COVID-19 levels, and factors such as the number of flights and ships between Korea and China and other conditions have not fully recovered. Additionally, Chinese tourists' travel patterns have shifted to individual tourism."

The primary income account recorded a surplus of $1.57 billion, mainly from dividend income. This marks five consecutive months of surplus since turning positive in May. The surplus slightly increased from $1.46 billion in the previous month but decreased compared to $2.7 billion in the same month last year.

The net financial account, calculated as assets minus liabilities, increased by $4.52 billion in September. Direct investment saw an increase of $2 billion in overseas investments by domestic investors and $350 million in domestic investments by foreign investors. In securities investment, domestic investors' overseas investments rose by $6.57 billion, and foreign investors' domestic investments increased by $1.37 billion.

Surplus Trend to Continue in October... Semiconductor Market Recovery

The Bank of Korea expects the current account surplus trend to continue in October. Director Shin stated, "The current account surplus in October is expected to be similar to that of September," adding, "For the entire fourth quarter, the current account surplus will continue due to the recovery trend in semiconductors and sustained strong automobile exports." He further explained, "There are uncertainties such as oil price volatility and the possibility of increased energy imports for heating during the winter, which may reduce the surplus compared to the third quarter, but it will align with the annual forecast of $27 billion." The Bank of Korea projects a $27 billion current account surplus for this year, and if monthly surpluses average $3.5 billion from October to December, this forecast can be met.

Experts believe that although the current account surplus has continued for five months and the semiconductor market, a key export sector, has entered a recovery phase, it is difficult to be optimistic about the future outlook. If the Middle East conflict escalates, international oil prices could surge, negatively impacting the current account, and global economic uncertainties persist.

Professor Heo Jun-young of Sogang University's Department of Economics said, "It is positive that semiconductors are showing effects of production cuts on prices and improvements in the high-end segment, but the overall pace is not fast. The slow recovery of the Chinese economy, the largest consumer, and the less-than-expected impact of Chinese tourists are concerns." He added, "The Israel-Palestine situation will also affect October. The variables to escape the recession-type surplus are threefold: the Chinese economy, the global economy, and the semiconductor market. Considering the recovery speed, a full rebound is likely only in the mid to late next year."

Professor Yoo Hye-mi of Hanyang University's Department of Economics and Finance expressed concern, saying, "Although the semiconductor market is gradually recovering, uncertainties remain about how quickly exports will bounce back. The prolonged high interest rate policy in the United States means it will take time for consumption and investment to revive, and with exports recovering more slowly than expected, uncertainties about next year's economy are increasing."

[Image source=Yonhap News]

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