Surprise Improvement in Current Account Balance with Semiconductor Export Recovery (Comprehensive)

Current Account Surplus of $35.5 Billion Last Year, Exceeding Forecast
High-Performance Semiconductors for AI Exports Continue to Recover
Current Account Improvement Expected This Year

Thanks to the recovery of the semiconductor industry, South Korea's annual current account surplus last year exceeded expectations. The current account recorded a surplus for eight consecutive months until December last year, and the improving trend is expected to continue this year.

According to the preliminary balance of payments statistics for December 2023 released by the Bank of Korea on the 7th, South Korea's annual current account surplus last year was $35.49 billion, surpassing the Bank of Korea's initial forecast of $30 billion. This represents a 37.4% increase compared to the $25.83 billion recorded in 2022.

In its economic outlook in May last year, the Bank of Korea had projected the 2023 current account surplus to be $24 billion due to sluggish exports. However, as exports improved faster than expected, the November economic outlook raised the forecast to $30 billion, which was recently exceeded.

The current account surplus exceeded expectations because exports increased from the second half of last year, driven by the recovery in the semiconductor market, while imports decreased due to falling oil prices. As a result, the goods balance surplus last year reached $34.09 billion, a 32% increase compared to $25.83 billion the previous year.

Shin Seung-chul, Director of the Economic Statistics Bureau at the Bank of Korea, said, "In November and December last year, demand for high-performance semiconductors increased and prices recovered noticeably, leading to an improvement in the goods balance centered on semiconductor exports." He added, "At the end of the year, the trade deficit with China also decreased, and energy import prices stabilized, causing the current account surplus to exceed expectations."

Professor Heo Jun-young of the Department of Economics at Sogang University evaluated, "With exports improving, the international balance of payments is clearly improving, and the leading economic indicators are also continuing to improve."

December Current Account Surplus of $7.41 Billion, Eight Consecutive Months of Surplus

Supported by increased semiconductor exports, the current account surplus in December last year was $7.41 billion. The current account has maintained a surplus for eight consecutive months since May last year.

In particular, semiconductor exports in December last year amounted to $11.19 billion, a 19.1% increase compared to the same period the previous year. Semiconductor exports also rose 10.8% in November, continuing the growth trend for two consecutive months.

Driven by the expanding demand for artificial intelligence (AI) semiconductors, Samsung Electronics and SK Hynix have significantly increased exports of high-performance DRAM, specifically high-bandwidth memory (HBM) semiconductors, since the second half of last year, which is reflected in the figures.

Passenger car exports in December last year also showed strong performance, reaching $6.2 billion, a 19.2% increase compared to the same period the previous year.

On the import side, with international oil prices falling, raw materials decreased by 14%, capital goods by 7.9%, and consumer goods by 5.8%, continuing the downward trend.

With exports increasing and imports decreasing, the goods balance surplus in December reached $8.03 billion, the highest in two years and three months since September 2021.

Shin Seung-chul, Director of the Economic Statistics Bureau, is explaining the main features of the 'December 2023 Balance of Payments (Provisional)' on the morning of the 7th at the Bank of Korea in Jung-gu, Seoul.
[Image source=Yonhap News]

The services balance recorded a deficit of $2.54 billion, mainly due to travel and other business services. The deficit widened compared to the previous month (-$2.21 billion).

The travel balance (-$1.34 billion) saw a slight increase in deficit as travel income decreased due to a decline in Japanese tourists visiting Korea. The intellectual property (IP) balance turned to a deficit of $250 million as income from patent royalties received by domestic companies from overseas subsidiaries decreased.

The primary income balance recorded a surplus of $2.46 billion, an increase from the previous month (-$120 million), but down by $3.15 billion compared to December of the previous year ($5.61 billion). Among the primary income balance, dividend income showed a surplus of $2.25 billion, reflecting increased dividend income from overseas subsidiaries of domestic companies and the disappearance of the quarterly dividend payment effect from the previous month.

The net financial account, which is assets minus liabilities, increased by $5.68 billion. In direct investment, domestic investors' overseas investments increased by $5.83 billion, mainly in the secondary battery sector, while foreign investors' domestic investments increased by $1.41 billion.

In securities investment, domestic investors' overseas investments and foreign investors' domestic investments increased by $3.04 billion and $2.83 billion respectively, mainly in stocks.

Busan Port (archival photo) [Image source=Yonhap News]

Current Account Improvement Expected to Continue This Year Centered on Exports

The current account improvement trend is expected to continue this year, centered on exports. The Bank of Korea forecasts this year's current account surplus to be $49 billion. Director Shin said, "Exports, especially in semiconductors, are expected to continue improving this year," and "the current account surplus is expected to be larger than last year."

Professor Yoo Hye-mi of the College of Economics and Finance at Hanyang University said, "With the recovery of the semiconductor market, the current account is expected to continue its recovery trend this year," adding, "Among countries, expectations for exports to the United States remain higher than to China this year."

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