BOK: "Current Account Surplus in First Half to Exceed Forecast" [Q&A]

BOK May International Balance of Payments (Preliminary) Press Briefing

[Image source=Yonhap News]

The Bank of Korea reported that the cumulative current account surplus this year reached $25.47 billion, showing a faster improvement trend than initially expected, and evaluated that the current account surplus for the first half of the year will comfortably exceed the forecasted figures.

Song Jae-chang, head of the Financial Statistics Department at the Bank of Korea, stated at the "May Balance of Payments (provisional)" press briefing on the 5th, "The June current account is expected to record a substantial surplus centered on the goods balance and primary income balance," adding, "In the May economic outlook, the first half current account surplus was projected at $27.9 billion, but with the current figure at $25.47 billion and a significant surplus expected in June as well, the first half current account surplus is likely to surpass the initial May forecast."

Regarding concerns that the recent super weak yen phenomenon could negatively impact South Korea’s exports and exchange rate, he said, "The Korean won tends to weaken alongside the Japanese yen, but the impact is not expected to be significant," and added, "Semiconductor exports are mainly influenced by the global IT industry improvement trend rather than exchange rates, so the effect will be limited."

However, he noted, "It is necessary to monitor the impact on sectors with high export competition such as automobiles and steel," and evaluated, "Due to the recent weak yen phenomenon, more people are traveling to Japan, which could increase the deficit in the travel balance."

Below is a Q&A with Director Song.

- The current account surplus has expanded. Do you expect to achieve the first half economic outlook figures?

▲The June current account is expected to record a substantial surplus centered on the goods balance and primary income balance. According to the Ministry of Trade, Industry and Energy’s June customs clearance data, the goods balance increased by about $3 billion compared to May. This is expected to be reflected in the June current account as well. The primary income balance is expected to grow as the impact of the May quarterly dividends weakens.

▲The cumulative current account is showing a faster improvement than initially expected. In the May economic outlook, the first half current account surplus was projected at $27.9 billion, but with the current figure at $25.47 billion, the first half current account is expected to exceed the initial forecast.

- Direct investment assets saw the largest increase in 25 months. What are the specific reasons?

▲In May, stocks that had previously led overseas direct investment such as automobiles and secondary batteries resumed after a lull in April. The lull in April was due to issues such as additional investment and equity expansion in autonomous driving technology companies in the U.S. for automobiles, and delays in investments to expand production capacity at overseas plants for secondary batteries.

- Can the decrease in imports be interpreted as a signal of domestic demand weakness?

▲From January to May this year, goods exports increased by 9.7%, continuing an improving trend, but goods imports decreased by 5.7%. Imports temporarily increased in April but showed a decline this year. Based on customs clearance imports from January to September, raw materials decreased the most. Capital goods also fell by 2.5%, and consumer goods by 2.8%.

▲By item, imports of semiconductors, petroleum products, and crude oil increased, while gas, chemical products, coal, semiconductor manufacturing equipment, and passenger cars decreased. The decrease is partly due to relatively stable energy prices. Although oil prices rose after April, gas demand was weak last winter due to low heating demand and high inventory levels, and coal prices remained low due to increased alternative energy generation.

▲Regarding capital goods, as semiconductor exports increase, imports of related raw materials typically rise. However, semiconductors have a low raw material proportion, so the import inducement rate was not favorable. For semiconductor manufacturing equipment, facility investments delayed in the first half due to industry downturns are expected to continue into the second half. In consumption, passenger cars showed a decrease, influenced by the base effect of increased supply after last year’s supply chain shortages were resolved. The Bank of Korea’s basic view is that sectors such as facility investment and consumption will gradually recover in the second half.

- The impact of the super weak yen on exchange rates is being discussed. What about its effect on domestic exports or travel balance deficits?

▲Recently, the Japanese yen has weakened significantly compared to other currencies, raising concerns that South Korea’s exports might weaken due to competition with the yen. The won and yen exchange rates tend to move in tandem. There will be some impact, but it is not expected to be large.

▲With the competitiveness of South Korean products, especially IT items, increasing, export competition has decreased compared to the past. Semiconductors are mainly influenced by the global IT industry improvement rather than exchange rates, so the impact will be limited. However, it is necessary to monitor the impact on sectors with high competition such as automobiles and steel.

▲Due to the recent weak yen phenomenon, more people are traveling to Japan, which could increase the deficit in the travel balance.