By Yoon Ja-young
The country recorded a current account surplus for 36 months in row in February amid decreasing demand for imports due to the sluggish domestic economy.
Exports, which have been the country’s sustaining pillar, are also making less of a contribution to economic growth.
Amid a pessimistic outlook on the traditional export-led economic model, economists say that the government should focus on nurturing the domestic market.
According to the Bank of Korea (BOK), exports’ contribution to the economy is falling each year. In 2014, exports of goods and services contributed to 45.5 percent of the country’s 3.3 percent economic growth rate. It has been falling each year since 2012, and fell to the lowest level since 2009 last year.
The value of the country’s exports stood at $47 billion last month, down 4.2 percent from a year ago. It has been falling for three consecutive months compared with a year ago. The sluggish exports of petrochemical products due to low global oil prices and the weakening of the Japanese yen are further deteriorating this.
While a weakening of the Korean currency could help pull up exports, the current account surplus is sustaining the value of the won. The problem here is that the current account surplus is mostly caused by the decrease in imports, not increases in exports.
The BOK said the current account surplus was $6.4 billion in February, up 41.9 percent from a year ago.
The current account has been running a surplus since March 2012, with the central bank expecting a record-high of $94 billion this year.
However, the surplus is causing concern as it is due to sluggish domestic consumption. In the goods account, exports decreased 15.4 percent to $40.6 billion, but imports plunged by 21.9 percent to stand at $33.3 billion.
Shin Min-young, an economist at LG Economic Research Institute, said Korea’s traditional economic development model that depends on exports from the manufacturing sector, is losing steam.
“The growth of global trade now stands at a mere 3 percent, and developed economies are strengthening domestic production. It would be difficult to find additional growth engines in manufacturing. It is time to switch the focus to the domestic market based on the services sector,” he said.