The Bank of Korea: "Current Account Surplus Likely to Continue Due to Export Improvement" [Q&A]

The Bank of Korea Announces Current Account Balance for January Last Year... 9 Consecutive Months of Surplus
Clear Improvement in Current Account Due to Semiconductor Export Boom

[Image source=Yonhap News]

The current account balance has shown a surplus for nine consecutive months, driven by a clear improvement in exports centered on high-performance memory semiconductors. It is expected that the surplus will continue, mainly in the goods balance, going forward.

According to the Bank of Korea on the 8th, the current account balance for January was $3.05 billion, marking a surplus for nine consecutive months since May 2023.

Song Jae-chang, head of the Financial Statistics Department at the Bank of Korea’s Economic Statistics Bureau, stated, "The current account surplus narrowed compared to December due to seasonal factors at the turn of the year," but added, "Looking at the trend, the favorable current account surplus flow continues, supported by the export improvement that began in the second half of last year."

Below is a Q&A with Director Song.

- Semiconductor customs export in January increased by 52.8% compared to the same month last year. How significant is this growth rate?

= It is the largest scale since December 2017.

- What is the reason for the significant improvement in semiconductor exports?

= Demand for memory semiconductors, especially high-performance memory semiconductors for servers, has been recovering steadily since the second half of last year. In particular, demand from China is increasing. Semiconductor prices have also continued to rise, and overall, the market sentiment has clearly improved, resulting in a substantial increase in volume.

- The current account surplus has continued for nine consecutive months. How long do you expect this to last?

= According to the customs-based trade balance data for February, the surplus expanded by nearly $4 billion compared to January. The current account surplus is expected to increase in February. Although the annual current account balance will fluctuate due to seasonal factors, it is expected that the surplus will continue in the first half of the year, centered on the goods balance, and the surplus will clearly expand in the second half. Considering that the current account surplus is expected to expand in February as well, this aligns with the Bank’s forecast of a sustained current account surplus trend.

- Exports in the goods balance increased by 14.7% compared to the same month last year. How long has it been since a double-digit increase?

= It is the first time in 20 months since May 2022, when it recorded 21.6%.

- You mentioned that there were special factors affecting the primary income balance last year. Do you expect a similar trend this year?

= The primary income balance for January showed a surplus of $1.62 billion. In January last year, it recorded a historic high surplus of $6.67 billion. A surplus in the $1.6 billion range is similar to the usual level for January. It is difficult to predict future trends based on January alone, but the primary income balance is likely to shrink compared to last year. However, South Korea’s overseas direct investment continues to increase. Especially considering that global IT companies among overseas subsidiaries are maintaining a positive global IT trend, although the scale of the shrinkage will be smaller than last year, a relatively favorable shrinkage trend compared to previous years is expected to continue.

- What impact will domestic demand sluggishness have on import reductions?

= Imports consist of raw materials, capital goods, and consumer goods. Raw materials are decreasing as energy prices decline. Capital goods and consumer goods are influenced by facility investment and private consumption, respectively. Private consumption has not yet shown a clear recovery trend, which is reflected here. Facility investment was negative in the second half of last year, and capital goods revenue also showed a sluggish trend. However, semiconductor imports have increased. The increase in exports through the semiconductor market is likely to be reflected. Domestic demand sluggishness may act as a constraint, but capital goods are imported for export companies. If exports expand, capital goods imports will also increase. The Bank’s economic forecast expects facility investment to turn upward (from decline to growth) in the first half of this year. Therefore, import reductions are expected to be mitigated from this perspective.

- The travel balance deficit widened from -13.4% in December last year to -14.7% in January. What is the outlook for the first half of the year?

= The travel balance in January was affected by increased overseas travel during the winter vacation period, including to Japan. This effect is expected to diminish in February. Also, the number of arrivals in January decreased somewhat compared to December. However, current monitoring shows that arrivals, mainly Chinese tourists, are increasing due to the Chinese Lunar New Year holiday in February, so improvement is expected in February. In the long term, it is necessary for Chinese travel demand to fully recover. Compared to pre-COVID levels, the number of arrivals has not increased significantly. Infrastructure recovery needs to be observed. The number of departures has already recovered to pre-COVID levels. Since the number of outbound domestic travelers is increasing significantly more than inbound foreign travelers, the travel balance deficit trend is expected to continue, although there will be volatility.

- In the import sector, crude oil increased by 6% and petroleum products by 24.2% in January. International oil prices have been rising recently. What impact will oil prices have on imports going forward?

= Although international oil prices have risen, the import price of crude oil has fallen. The import price dropped from $87.6 per barrel in December to $82.9. The decline in import prices narrowed from -7.9% to -2.9% in December. Import volumes increased, but the impact needs to be monitored. If international oil prices rise, there will be uncertainty in terms of price, so it is difficult to predict at this point. Future trends need to be observed.

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