Current account swings into red in 7 years

By Park Hyong-ki

The country had a current account deficit in April for the first time in seven years due to falling exports and an increase in foreign dividend payments, according to the Bank of Korea (BOK), Wednesday.

The deficit of $660 million ended 83 straight months of current account surpluses. The last time the country had a deficit was in April 2012 amid a crisis in some European countries.

The current account is the broadest measure of trade.

Although it had a positive net trade in the balance of payments, it was not enough to cover a services deficit and dividend outflows.

Companies here pay the bulk of annual dividends to investors in April; and nearly $7 billion in dividends were paid to foreign concerns.

Exports fell 6.2 percent to $48.3 billion from the same month a year ago, mainly due to weakening global demand for semiconductors. The volume of the country's outbound shipments amounted to $185.8 billion in the first four months of the year, down nearly 8 percent from the same period in 2018.

Imports increased 1.8 percent to $42.6 billion in the same period. Thus, the goods account had a surplus of $5.67 billion.

With an income deficit of $4.33 billion on the back of increased dividend payments and a services deficit of $1.43 billion, the current account fell into the red.

Analysts, however, agree with the finance ministry and the central bank that the April deficit was a “one-off event.”

The economy is expected to maintain a current account surplus in the second half, even though it will be narrowed due to the ongoing U.S.-China trade war.

“After adjusting for seasonal factors such as dividend payments, the current account in April still saw a large surplus,” said Rajiv Biswas, chief economist at IHS Markit in Singapore.

“Korea should be able to maintain a current account surplus in the second half of 2019. However, its surplus is expected to narrow due to the combined shocks of the trade war and declining global orders for electronics.”

Korean exports to China dropped 20 percent in May year-on-year, Biswas noted.

The finance ministry said the current account will be back in the black in May, and the services account will improve amid a falling travel deficit.

It expects the current account to record a surplus of over $60 billion this year, citing the central bank's projection of $65.5 billion.

“We will seek to revitalize exports by rapidly carrying out policies aimed at boosting export financing and marketing,” the ministry said in a press statement.

The finance ministry will draw up additional measures to support the global expansion of startups and diversify the country's export destinations, it added.