Bank of Korea: "Martial Law Situation Not Significant Enough to Change Current Account Flow" [Q&A]

On the 6th, the Bank of Korea assessed the recent emergency martial law situation's impact on the current account, stating that "there is no significant impact that would change the flow," and that "the current account is mainly influenced by external conditions, export performance, and changes in external policies, so the effect of temporary political events is limited."

Yonhap News

Song Jae-chang, head of the Bank of Korea's Financial Statistics Department, said at a press briefing held after the announcement of the 'October Balance of Payments (provisional)' that "the emergency martial law was resolved early," and "there was an impact on short-term market and investment sentiment, but it was short-lived."

He evaluated that the current account forecasts for this year and next year are likely to be achieved smoothly. He explained, "If $15.76 billion is achieved in November and December, the annual forecast for this year can be met," adding, "Looking at export figures based on customs clearance in November, a favorable surplus trend has continued. It will show a flow consistent with the annual forecast."

Regarding the possibility of a current account deficit next year due to the second term of Trump's policies, he diagnosed that the likelihood is low. Song said, "Trump's tariff policies may affect our country's current account," but added, "There is unlikely to be a sudden change significant enough to cause a current account deficit."

Below is a Q&A with Director Song.

- How do you view the impact of the emergency martial law situation on the future current account?

▲ The emergency martial law was resolved early. There was an impact on short-term market and investment sentiment, but it was short-lived. The future political situation will influence this. However, from the current account perspective, external conditions, export performance, and changes in external policies are the main factors. It is still too early to say how much a temporary political event will affect the current situation, but so far, there is no significant impact that would change the flow, and the effect is limited.

- Is it possible to achieve this year's current account forecast ($90 billion)?

▲ If $15.76 billion is achieved in November and December, the annual forecast for this year can be met. Looking at export figures based on customs clearance in November, a favorable surplus trend has continued. It will show a flow consistent with the annual forecast.

- Considering the impact of Trump's policies, is it possible to achieve next year's current account forecast ($80 billion)? Is there a possibility of a current account deficit?

▲ As forecasted in November, exports will grow centered on high-performance semiconductors driven by artificial intelligence (AI) investment demand, but the growth rate will slow. Imports will see a slowdown in raw material increases due to falling international oil prices, but capital goods and consumer goods will increase moderately. As export growth slows and import growth also slows, we expect to achieve $80 billion.

▲ Trump's tariff policies may affect our country. However, we need to observe how the actual policies will be implemented and their intensity. We also need to watch the responses of neighboring countries. Since uncertainties such as intensified trade conflicts and contraction of global trade are somewhat expected due to these influences, it is necessary to closely monitor future policy changes. There is unlikely to be a sudden change significant enough to cause a current account deficit. We also need to watch changes in U.S. policies, global IT market trends, and China's responses.

- Interest income exceeded $1 billion. What caused this increase?

▲ Interest income increased at the largest scale since April 2021 ($1.4 billion). Recently, as Korea's bond investments, mainly in U.S. Treasury bonds, increased, the interest payment cycle influenced this. When Korea invests in overseas securities, there is an interest payment cycle for bonds. Due to this payment cycle, the increase varies from year to year.

- In the financial account's other investment sector, assets increased significantly while liabilities decreased substantially. What is the reason?

▲ Regarding assets in other investments, in September, companies and financial institutions reduced loans and managed assets focusing on cash to maintain asset soundness. In October, this behavior of financial institutions changed, showing some peculiarity. For other investment liabilities, $3.52 billion was borrowed in September but repaid in October. Recently, as the current account has maintained a high surplus, foreign currency supply has increased while demand has decreased due to outflows abroad.