BOK: "Current Account Remains Solid This Year... Growth Rate Shrinks Due to US Trade Pressure" [Q&A]

Announcement of 'Preliminary International Balance of Payments for December 2024 and Annual Results'
IT Exports Continue to Drive Surplus This Year, but Growth Expected to Slow
January Trade Deficit Likely to Narrow Current Account Surplus

On the 6th, the Bank of Korea assessed this year's current account outlook, stating, "Although the size of the current account surplus will decrease, the situation will remain favorable," and added, "The intensity and timing of trade pressures from the Trump administration in the United States and the responses of major trading partners will be key points to watch."

Shin Seung-chul, Director of the Economic Statistics Division 1 at the Bank of Korea, is announcing the "Preliminary Balance of Payments for December 2024" on the 6th. (Provided by Bank of Korea)

Shin Seung-cheol, Director of the Economic Statistics Division 1 at the Bank of Korea, said at a press briefing held after the announcement of the 'Preliminary International Balance of Payments for December 2024' that "the new Trump administration has announced various trade policies since its inauguration, and major trading partners are responding, creating significant uncertainty related to this."

Director Shin explained, "Looking back at Trump's first term, there was a large current account surplus with the United States, and in response, (South Korea) significantly increased energy imports," adding, "If trade pressures intensify, there is a possibility of increasing energy imports as a countermeasure, which could also affect the current account."

Regarding IT exports such as semiconductors, which led last year's $99 billion surplus, he said, "They have been rising for 15 consecutive months and have already reached a very high level, so technically, a slight decline is inevitable," but also predicted, "The upward trend will continue." He added, "In January this year, the current account surplus could shrink significantly as the trade balance turned to a deficit due to a decrease in working days caused by the long Lunar New Year holiday."

Below is a Q&A with Director Shin.

- What is the outlook for the current account in January and for this year?

▲ In January this year, the trade balance based on customs clearance turned to a deficit. Typically, exports and the trade balance tend to shrink in January. Additionally, the long Lunar New Year holiday reduced the number of working days. Due to these factors, the current account surplus in January is expected to shrink significantly. However, it is unlikely to turn into a deficit.

The annual outlook was forecast at $80 billion in November last year. It is expected that the surplus will decrease compared to the previous year, but since goods exports, which account for the largest portion, have maintained an increasing trend for 15 consecutive months and the export volume itself is at a very high level, a technical decline is inevitable. However, the overall export trend is expected to remain robust for a considerable period this year as well, centered on high-spec semiconductors in the IT sector. Therefore, although the surplus size will decrease somewhat, it is already quite large, so the current account situation is expected to remain favorable this year as it did last year.

- What is the biggest variable in the current account trend this year?

▲ The most important risk factor seems to be the trade policies of the Trump administration in the United States and how major countries respond. Since the timing and intensity of trade pressures need to be continuously monitored, this will be a key point to watch. Looking back at Trump's first term, there was a large current account surplus with the United States, and in response, energy imports were significantly increased. If trade pressures intensify, there is a possibility of increasing energy imports as a countermeasure, which could affect the current account.

The economic situation of key export items such as semiconductors and other IT products must also be considered. Due to the US-China trade conflict, China is engaging in displacement exports, which could impact South Korea's exports. China remains South Korea's largest export market, so its economic situation and domestic demand also have an influence.

- Is there any change in the $80 billion current account forecast for this year?

▲ It is difficult to make a definitive judgment at this point. Since the inauguration of the new Trump administration, various trade policies have been announced, and major trading partners are responding, creating significant uncertainty. The outlook could change depending on how the US trade pressures are addressed, so a comprehensive reassessment period is expected.

- Is the slowdown in export growth this year mainly due to technical factors following 15 consecutive months of growth?

= The slowdown in export growth is due to both technical factors and external export conditions. Looking at export conditions by item, there is a distinction between IT and non-IT sectors, and even within semiconductors, there is differentiation between general-purpose and high-spec products. Different items show varying trends depending on business conditions and overseas demand. Overall, exports centered on the IT sector are expected to continue increasing this year as they did last year.

However, everyone is interested in how long IT, especially semiconductors, will maintain a favorable trend. General-purpose semiconductors began to decline in the second half of last year, and due to the US-China trade conflict and semiconductor regulations against China, displacement exports have increased, intensifying global market competition. On the other hand, major semiconductor companies in South Korea are responding to the global environment by passing technology tests for high-spec semiconductors.

The general consensus is that demand for high-spec semiconductors related to AI investment remains robust, while general-purpose semiconductors face difficulties due to weak demand or intensified competition. The previous forecast assumed that the semiconductor upcycle would continue until the first half of the year, but with the new Trump administration, there is uncertainty as semiconductor-related laws might be invalidated and China's semiconductor regulations could intensify further.

- What is the impact of the DeepSeek shock?

▲ The general market interpretation is that it could be both an opportunity and a crisis. It remains to be seen whether DeepSeek will become a new game changer in the AI market. A concern is that if the US, which leads AI, strengthens semiconductor regulations against China because of this, it might also affect South Korea's semiconductor exports.

- The current account surplus in December was large; is there a possibility of upward revision of last year's 4th quarter GDP?

▲ The large current account surplus in December was due to an expanded trade surplus based on customs clearance compared to the previous month, the disappearance of overseas dividend outflows, and an increase in overseas dividend income, which raised the primary income balance.

Industrial production in December showed a favorable trend on the production side, but looking at expenditure items, construction activity was weak. When the preliminary 4th quarter GDP was announced in January, the December industrial activity data had not been reflected yet, but it did not deviate significantly from expectations at that time. Since various basic data will be added beyond industrial activity trends, it is necessary to do more work to determine how the 0.1% growth rate for the 4th quarter will be revised.