Bank of Korea "Export Improvement Trend... Current Account Surplus Likely to Continue" [Q&A]

Current Account Balance Announced for December Last Year... 8 Consecutive Months of Surplus
Semiconductor Recovery... Reduction in Deficit of Trade Balance with China

On the 8th, a briefing on the provisional balance of payments for September 2023 was held at the Bank of Korea in Jung-gu, Seoul. From the left: Park Seong-gon, Deputy Head of the International Balance of Payments Team at the Bank of Korea; Shin Seung-cheol, Director of the Economic Statistics Bureau; Moon Hye-jung, Head of the International Balance of Payments Team; and Ahn Yong-bi, Manager of the International Balance of Payments Team.
[Photo by Yonhap News]

South Korea's current account balance has recorded a surplus for eight consecutive months. Thanks to improved exports, the current account surplus is expected to continue this year as well.

According to the Bank of Korea on the 7th, the current account balance for December last year showed a surplus of 7.41 billion dollars. The annual current account balance was tallied at 35.49 billion dollars, significantly exceeding the forecast (a surplus of 30 billion dollars).

Shin Seung-cheol, Director of the Economic Statistics Bureau at the Bank of Korea, explained, "The current account balance in December last year recorded a surplus for eight consecutive months, approaching the highest figure of the year recorded in October," adding, "This is due to the expansion of the goods account surplus and the current income account turning to a surplus."

Below is a Q&A with Director Shin.

- What is the reason the current account balance significantly exceeded the annual forecast of 30 billion dollars?

▲ While the service account and income account were sluggish, the goods account improved. In November and December last year, demand for high-performance semiconductors increased and prices showed a clear recovery trend, leading to improvements centered on semiconductor exports. The trade deficit with China also showed signs of shrinking after previously being in deficit. Although energy prices were uncertain due to geopolitical risks, they stabilized considerably after the forecast was announced. The goods account significantly exceeded expectations, causing the annual current account balance to greatly surpass the forecast. Additionally, there was an upward revision during the finalization of the international balance of payments data.

- The current account balance increased significantly in December. Do you expect this to continue next year?

▲ We forecast the current account surplus to be 49 billion dollars this year and 59 billion dollars in 2025. This is because the goods account is performing well as the semiconductor and IT sectors recover. We expect this trend to continue this year as well.

- Exports to the EU decreased sharply by 20% compared to the same period last year. What is the reason? (Answer from the International Balance of Payments Team Leader)

▲ In the EU region, demand for electric vehicles slowed down, leading to a decrease in exports of automobile parts compared to the same month last year. By item, machinery, chemical products, and steel products decreased.

- In December last year, the top export destination reversed from China to the United States. Based on the trend so far, do you expect the top export destination to change again?

▲ At the end of last year, due to US-China trade conflicts and supply chain restructuring, the US temporarily became the top export destination. Afterwards, with the recovery of semiconductor exports, China regained the position as the top export destination. Looking at the trend, the share of exports to China is decreasing while exports to the US are increasing. Overseas production bases have shifted from China to Vietnam. Accordingly, exports to China are declining, while exports to Vietnam are on the rise. South Korea has also increased overseas direct investment in the US related to supply chain restructuring, and exports to the US are expected to continue increasing, so we anticipate changes in the top export destination status in the future.

- The decline in semiconductor imports narrowed to -7.7% in December. Does this indicate an expansion in investment?

▲ Semiconductor imports are divided into material imports and manufacturing equipment imports. Both parts have decreased. For material imports, production cuts since the first half of last year had an impact, and for manufacturing equipment, facility investment was somewhat completed in the second half of last year, leading to a decrease.

- At last month's briefing, you mentioned that Southeast Asian tourists decreased in November but would increase in December and January. Did the number increase again in December?

▲ Looking at the number of arrivals in December, Southeast Asia and China are maintaining a gradual increase. On the other hand, the number of arrivals from Japan has decreased.

- The deficit in the service account and travel account is large. What is the reason?

▲ The annual service account deficit is the largest since 2019. The increase in the deficit is due to the transition to endemic conditions, which increased the number of outbound travelers. Additionally, the freight transport account turned to a large deficit as maritime freight rates fell.

- Although Chinese tourists are increasing gradually, the level is still low compared to the past. Is this becoming a new norm?

▲ The situation in China has changed after the COVID-19 period, but the pattern of Chinese group tourists consuming heavily domestically as before has largely disappeared. Currently, individual tourism is increasing more than peddlers or group tourists. The trend of heavy consumption during overseas travel has also largely disappeared.

- On an annual basis, the decrease in imports (-9.3%) is greater than the increase in exports (+5.8%). Can this be interpreted as moving away from a recession-type surplus?

▲ If the definition of a recession-type surplus is that the decrease in imports is greater than that of exports, then yes. However, the export increase has turned positive for three consecutive months, and the import decrease was mainly influenced by the drop in energy prices. The reduction in export decline and the positive turn in the second half were due to the semiconductor and IT sector recovery being delayed more than expected, leading to a surplus in the second half.

- Direct investment assets in the financial account decreased significantly from 65.8 billion dollars in 2022 to 34 billion dollars last year. What is the reason?

▲ Overseas direct investment was on an increasing trend during the global financial crisis in the 2008s when globalization was strong, and South Korea also expanded overseas expansion. In 2021 and 2022, the largest overseas direct investments were made centered on semiconductors and secondary batteries. The decrease in direct investment in 2023 appears relatively small due to the base effect of 2021 and 2022. The semiconductor sector's sluggishness in 2023 also had an impact.

- Bond investment increased from 5 billion dollars in 2022 to 15.6 billion dollars last year. Is this due to rising interest rates?

▲ Regarding securities investment, stocks increased significantly during the COVID-19 period but decreased in 2023. For bond investment, from the second quarter of 2023, expectations of interest rate cuts led to an increase in long-term bond investments mainly by non-financial institutions compared to the previous year. Domestic investors' overseas securities investments seem to be influenced by overseas interest rate levels.

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