Trade balance turns to surplus after 7 months
In April of this year, the current account balance recorded a deficit of 790 million dollars, returning to a deficit after just one month. This was due to increased dividend payments to foreigners and a rise in overseas travel following the easing of COVID-19 restrictions.
According to the provisional international balance of payments for April released by the Bank of Korea on the 9th, the domestic current account recorded a deficit of 790 million dollars. The current account turned to a deficit after recording the largest deficit since statistics began in 1980, with a deficit of 4.21 billion dollars in January this year. In February, it showed a continuous deficit of 520 million dollars, then struggled to rebound with a surplus of 160 million dollars in March, but returned to a deficit in April.
The goods balance was recorded as a surplus of 580 million dollars. It turned to a surplus for the first time in seven months since a surplus of 750 million dollars in September last year. The size of the goods balance deficit expanded unusually to 7.32 billion dollars in January but decreased to the low 1 billion dollar range in February and March, and in April, it increased by about 1.8 billion dollars compared to March, turning to a surplus. Lee Dong-won, head of the Financial Statistics Department at the Bank of Korea’s Economic Statistics Bureau, said, "The goods balance has turned to a surplus after seven months, and the service balance has been reducing its deficit for three consecutive months," adding, "The goods and services balances have shown a gradual improvement trend since January."
Exports amounted to 49.11 billion dollars, down 9.93 billion dollars (16.8%) compared to the same month last year. Exports have declined for eight consecutive months due to the global economic slowdown, with decreases in semiconductors, chemical products, and petroleum products. In particular, semiconductors (customs basis -40.5%), petroleum products (-27.4%), steel products (-15.7%), and chemical products (-12.8%) showed weakness. By region, exports to Southeast Asia (-29.1%), China (-26.5%), Japan (-21.1%), and the United States (-4.4%) contracted.
Imports were 48.53 billion dollars, down 7.38 billion dollars (13.2%) from the same month last year. Imports of raw materials, capital goods, and consumer goods all decreased.
The service balance recorded a deficit of 1.21 billion dollars. However, the transportation balance turned to a surplus with 30 million dollars, and the travel balance recorded a deficit of 500 million dollars, narrowing the deficit compared to the previous month. This was influenced by the number of departures in April increasing by 25,000 to 1.497 million compared to March, while arrivals increased by 88,000 to 889,000.
The primary income balance recorded a deficit of 90 million dollars. Dividend income showed a deficit of 550 million dollars due to dividends paid to foreigners, turning the balance to a deficit. Typically, April is the period when overseas dividends are paid by companies with December fiscal year-ends, which acts as a factor worsening the current account balance. The dividend income balance is the amount of dividends received by domestic residents from overseas minus the dividends received by foreigners domestically.
Lee said, "Typically, April is a period when the primary income balance shows a deficit due to dividend payments to foreigners, but the size of the primary income deficit in April was significantly reduced compared to the average deficit of 3.69 billion dollars in April over the past eight years," adding, "In May, the trade balance deficit narrowed compared to April, and the impact of dividend payments concentrated in April will disappear, continuing the improvement trend in the current account."
The net financial account, which is assets minus liabilities, decreased by 4.82 billion dollars. In direct investment, domestic investment abroad increased by 980 million dollars, while foreign investment in the domestic market decreased by 740 million dollars.
In securities investment, domestic investment abroad increased by 1.75 billion dollars, and foreign investment in the domestic market increased by 5.38 billion dollars. Foreign investment in domestic stocks turned to an increase due to easing global financial instability, and bond investment increased due to incentives for arbitrage trading.
From the beginning of this year to April, the current account recorded a deficit of 5.37 billion dollars, shrinking by 20.38 billion dollars compared to the same period last year (a surplus of 15.01 billion dollars). Kim Jeong-sik, emeritus professor of economics at Yonsei University, said, "Although the goods balance turned to a surplus after seven months, the current account is still significantly worse compared to the same month last year," adding, "With continued sluggish exports to China and the semiconductor industry, which is a key export item, not yet recovering, the pace of improvement in the current account may remain slow."
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