Emergency Lights On for Current Account Surplus... Is Annual Target Achievable?

Achieving an Annual Surplus of 50 Billion Dollars Is Not Easy
International Raw Material Price Fluctuations Are Key Variables

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jung] In June, the current account balance recorded a surplus for the second consecutive month, surpassing the Bank of Korea's forecast for the first half of the year. However, achieving the annual forecasted surplus of 50 billion dollars is expected to be difficult. The surplus amount decreased by more than 3 billion dollars compared to a year ago due to rising import prices of raw materials and a decline in exports to China, triggering warning signals.

According to the Bank of Korea on the 7th, the current account balance in June showed a surplus of 5.61 billion dollars (approximately 7.3379 trillion won), down by more than 3.2 billion dollars compared to a year ago. The cumulative surplus for the first half of this year was 24.78 billion dollars, exceeding the Bank of Korea's May forecast of 21 billion dollars, but it decreased by 16.97 billion dollars compared to the first half of last year, marking the second-largest decline on record.

This decrease in surplus was largely influenced by the goods account surplus, which was 3.59 billion dollars, 3.96 billion dollars less than a year ago. The Bank of Korea explained, "Exports have increased for 20 consecutive months, but the growth rate has slowed due to sluggish exports to China, and imports have increased for 18 consecutive months due to a sharp rise in raw material prices."

Although the current account surplus for the first half exceeded the Bank of Korea's forecast, the monthly surplus has been decreasing, and due to the slowdown in exports caused by the global economic recession, the annual forecast is expected to fall short of the initially predicted 50 billion dollars. Hwang Sang-pil, Director of the Economic Statistics Bureau at the Bank of Korea, said, "Going forward, the current account balance will be mainly affected by risks such as the slowdown in growth of major countries and fluctuations in international raw material prices. The slowdown in growth of major trading partners such as China and the European Union (EU) could negatively impact exports, and it is necessary to closely monitor the semiconductor industry's performance, which is a key item, and whether global supply disruptions are resolved."

The Bank of Korea plans to present its current account forecast at the end of this month, and it is highly likely that the surplus size will be revised downward from the May forecast of 50 billion dollars. On the 4th, Choi Sang-mok, Senior Secretary for Economic Affairs at the Presidential Office, forecasted, "An annual surplus of 30 to 40 billion dollars is expected." If this forecast materializes, the surplus size would decrease by at least 10 billion dollars compared to the initial estimate. Amid growing concerns about the economy in the second half of the year, Prime Minister Han Duck-soo said on the 5th, "According to the Bank of Korea, the current account surplus is expected to be around 45 to 50 billion dollars by the end of the year," and evaluated, "Although the surplus size has decreased due to rising international energy prices, it is by no means a small amount."

The biggest variable for achieving the annual forecast in the future is expected to be international raw material prices. Director Hwang added, "Fluctuations in international raw material prices will be an important factor in determining whether the rapid increase in imports continues," and said, "Recently, prices of raw materials such as international oil have been declining, and we need to observe whether this trend will continue."