Current Account Deficit Hits 11-Year High

By Na Jeong-ju
Staff Reporter

Korea is seeing signs of stagnant economic growth amid high inflation ― known as stagflation ― and a widening trade deficit due to rising prices of crude oil and other raw materials, as well as the U.S. subprime crisis.

The Bank of Korea (BOK) reported Thursday the deficit in the current account ― the broadest measure of trade, services and investment ― flowing into and out of the country, widened to an 11-year high in January amid soaring oil prices.

Growing downside risks may prompt the central bank to lower its growth target for this year from its earlier projection of 4.7 percent. The market regards the Lee Myung-bak government's ambitious goal of achieving a 6 percent growth through stimulus packages as unrealistic. Korea is expected to see its highest inflation in a decade this year.

The current account shortfall reached $2.6 billion in January, compared with a revised $813.8 million deficit in December. The January shortfall was the largest since January 1997 when it amounted to $3.13 billion.

``Exports continued robust growth in January, but the surging prices of oil and other raw materials raised import costs for firms,'' said Yang Jae-ryong, an official of the central bank.

Last month, the trade balance posted a shortfall for the first time since March 2003. Customs-cleared imports surged 31.1 percent from a year ago to $36.1 billion, while exports rose 15.4 percent to $32.4 billion.

Rising raw materials prices are casting a shadow over the country's economic recovery, fueling concerns that South Korea, a chief importer of oil, metal and grain, will suffer inflation and a significant drop in earnings from exports.

The price of Dubai crude, South Korea's benchmark, jumped 69 percent from a year ago in January, taking a toll on the world's fifth-largest oil buyer.

``The average import price of oil surged to $89 per barrel in January from $33 the previous year. As a result, oil imports grew to $7.3 billion in January from $4.1 billion a year ago,'' Yang said.

Surging oil costs have sharply increased the prices of goods and services here over the past few months, dampening consumer spending. Consumer prices rose above the BOK's target range of 2.5 to 3.5 percent from a year ago for the second straight month in January.

``Global raw materials prices are likely to go up further on a continued rise in global demand,'' the Korea Center for International Finance said in a recent report. ``A weak dollar and inflation risks will also put more upward pressure on global prices.''

In addition, the country's outbound shipments are expected to fall amid a U.S. economic recession. The BOK earlier said that the current account will likely swing to a shortfall of about $3 billion this year, the first deficit since 1997.

``If oil prices remain high this year, the annual current account shortfall may shoot above the BOK's initial forecast,'' Yang of the BOK said.

jj@koreatimes.co.kr