BOK: "Steady Current Account Surplus Continues... Expected to Persist in September" [Q&A]

August International Balance of Payments (Preliminary) Press Briefing

The Bank of Korea evaluated that although the current account surplus narrowed in August due to a slowdown in export growth of non-IT items, it still maintained a solid surplus trend. It explained that the current account is expected to smoothly achieve the forecast for the second half of the year.

[Image source=Yonhap News]

At a press briefing on the 'August Balance of Payments (provisional)' on the 8th, Song Jae-chang, head of the Financial Statistics Department at the Bank of Korea, said, "The current account surplus in August narrowed as export growth slowed mainly in non-IT items," but added, "However, the surplus size is close to the monthly average level from January to July this year and exceeds the monthly average level of the second half forecast announced in August," evaluating that the solid surplus trend continued.

Regarding the outlook for the current account, he explained, "Although imports increased for two consecutive months, the current account surplus will continue to expand thanks to the robust export momentum centered on IT items," and "The second half forecast of $35.3 billion is expected to be smoothly achieved."

On the impact of the recent sharp rise in international oil prices, he said, "Oil prices in September have shown a stable trend because production in the U.S. is going well, crude oil demand has somewhat weakened, and OPEC's production cut moves, including Saudi Arabia, have also weakened," but added, "However, oil prices are rising recently due to the situation in the Middle East, and since there are both upward and downward factors, we need to observe how much it will rise."

Below is a Q&A with Song Jae-chang, head of the Financial Statistics Department at the Bank of Korea.

- You evaluated that the current account surplus trend is solid. Imports have increased for two consecutive months, and oil prices have also risen recently. With increased demand for raw materials such as heating demand in winter, is there a possibility that the current account surplus will significantly slow down in the future?

▲The narrowing of the current account surplus was influenced by imports increasing for two consecutive months. Another factor was that while IT items showed robust growth, the growth of non-IT items somewhat slowed. Regarding imports, oil prices in September have shown a stable trend. There are concerns that heating demand will increase as winter approaches. The current stability in oil prices is due to strong production in the U.S. and somewhat weakened crude oil demand. Also, OPEC's production cut moves, including Saudi Arabia, have weakened, contributing to stability. However, oil prices are rising recently due to the situation in the Middle East, and this trend needs to be monitored further. There are upward factors but also downward factors. We need to see how much it will rise. Currently, prices have risen to the August level.

- There are concerns about the semiconductor market.

▲So far, AI investment has continued, and I think this trend will continue for the time being. Although there are talks about a 'peak out,' looking at the current situation, semiconductor export clearance in September set a record high, continuing an 11-month consecutive increase. Despite various concerns, AI-related investment momentum is still strengthening. Looking at the macroeconomic environment, there are upward factors such as the U.S. lowering interest rates and China implementing economic stimulus measures, so we need to watch the trend.

- What is the outlook for the current account?

▲Regarding the outlook for the current account, although imports increased for two consecutive months, the current account surplus expansion will continue thanks to robust export growth centered on IT items. The second half forecast of $35.3 billion is expected to be smoothly achieved. The trade surplus based on customs clearance in September showed an expansion compared to August. The impact of quarterly dividend payments will also be resolved in September. AI-related investment demand continues, and considering China's economic stimulus efforts and expectations for a soft landing of the U.S. economy, the macroeconomic environment and investment trends suggest a favorable flow will continue. Of course, uncertainties such as changes in major countries' economies, the speed of domestic demand recovery in our economy, and developments in the Middle East need to be monitored.

- Most non-IT item exports decreased. What is the reason for this? What impact will it have on the current account in September?

▲In the non-IT sector, the decrease in passenger car exports in August had an impact. Some companies experienced partial strikes and production line modernization work, leading to a decline in operating rates. For chemical products, demand from China affects the sector, and external demand has somewhat weakened. If steady demand continues due to China's economic stimulus and recovery speed and expectations for a soft landing of the U.S. economy, non-IT items may also increase. Looking at the trade surplus trend based on customs clearance in September, I think the outlook will continue to be solid.

▲(Head of the Balance of Payments Team) Among non-IT items, the growth of petroleum products significantly slowed. This is because unit prices dropped considerably due to the decline in international oil prices. Steel prices fell due to volatile global prices, lowering export unit prices. Machinery exports decreased in August as the global construction industry slowed down.

- What level of effect is expected from China's economic stimulus measures?

▲We are continuously monitoring the effects of China's economic stimulus measures. China recently lowered its benchmark interest rate and showed other signs. We expect this to have a positive impact on our country's exports going forward.