By Kim Rahn
Few people feel any extra weight in their purses and pockets despite the news of a record current-account surplus. So, what is happening? Is it an economic mirage?
The nation’s current account surplus hit a record high last year, but analysts say that’s largely attributable to decreased imports.
According to the Bank of Korea (BOK), Korea posted a $70.7 billion current account surplus in 2013, the largest ever.
The figure was up 47.2 percent from 2012’s $48 billion, the previous record.
BOK Director General Jung Yung-taek said the huge surplus resulted from a moderate increase in exports and a decrease in the monetary value of imports due to low raw material prices.
On balance, exports rose 3 percent to $570 billion from a year before, while imports dropped 0.8 percent to $510 billion.
However, experts say such a huge surplus was based on the decrease in imports resulting from sluggish domestic demand, rather than a significant increase in exports.
LG Economic Research Institute analyst Lee Geun-tae said low imports contributed to the surplus.
“The nation saw such a huge surplus while exports grew 3 percent, which was not high. This means lower imports from slow domestic demand caused it,” he said.
Lee said domestic demand has remained low for years. “Last year, construction investment recovered and boosted domestic demand to an extent, but it is unlikely to continue this year. Domestic demand will moderately rise in 2014, but it has lost vitality in general,” he said.
He also noted that a handful of companies led the large surplus, especially Samsung Electronics and Hyundai Motor Group, while most companies’ profits have been deteriorating.
“Exchange rates become unfavorable to Korean firms with the weakening yen. Most companies are unlikely to get out of their difficulties soon,” said Lee.
Researcher Song Min-kee at the Korea Institute of Finance also said the rapid growth of the current account surplus is attributable to a slowdown in imports. “If sluggish domestic demand continues, Korea may see more surpluses,” he said.
Jung, however, did not agree with “recession-style surplus” opinions, adding that while the monetary value of imports decreased, the volume increased last year.
“The volume of exports grew 5.2 percent last year and that of imports, 4.3 percent. In November and December, imports grew around 8 percent. I don’t see any recession-style surplus,” he said.
“In January as well, both exports and imports are showing steady growth. It seems the Korean economy is stronger than thought, unlike the recently troubled countries Argentina and Turkey.”
The BOK estimates 2014’s current account surplus will be around $55 billion.