Current account surplus dips to nearly 7-year low

By Lee Kyung-min

The nation's current account surplus fell to a near seven-year low of $11.2 billion in the first quarter due to a sharp fall in exports of key items such as semiconductors, the Bank of Korea (BOK) said Wednesday.

The figure was the smallest surplus on a quarterly basis since the second quarter of 2012 when it came in at $10.94 billion.

The surplus narrowed as outbound shipments fell 3.9 percent year-on-year to $137.5 billion in the January-March period, the first quarterly setback in exports since the third quarter of 2016.

Hit by this, the goods account surplus narrowed to $19.61 billion, the worst figure since the first quarter of 2014's $17.06 billion.

Observers note that the situation is unlikely to turn around in the coming quarters due to continued sagging exports.

These dropped 2 percent in April from a year earlier, extending their year-on-year fall for the fifth consecutive month due to a prolonged slump in chips and weak demand from China.

“The signals are clear that the country is entering the beginning of what is expected to be a protracted downturn,” said Yun Chang-hyun, a business professor at the University of Seoul.

“Chip sales are dropping amid softening global demand, which among others largely affects investment.”

He also expressed concern that the country may see a current account deficit for April, when large dividend payments were made.

“The implications of the current account deficit are severe given the country will become strapped for U.S. dollars, a reason why the government should come up with measure to help export companies,” Yun said.

By month, the country's current account surplus came to $4.8 billion in March, down from $5.1 billion a year earlier due to the widened deficit in the services account.

The goods account surplus narrowed to $8.47 billion, down from $9.41 a year before due to falling exports amid global slowdown and drop in chip unit cost.

The services account deficit increased to $2.34 billion, up from $2.26 billion from the previous year due to deterioration in the intellectual property account.

Yun called for the government to take pre-emptive measures to prevent the situation from deteriorating further.

“Exports have been and will likely remain the driver of Korea's economic growth for some time. Tax benefits among other incentives can be introduced as an incentive to have them increase investment in the country,” he said.

The BOK said it still remains to be seen whether April's current account will see a deficit.

“We understand the lingering concerns that April may see a significant dent in the current account balance, but dividend payments in the March-April period were not significantly greater than the year before,” a BOK official said.

He pointed out that the narrowed deficit in the services account should be also considered.

“Other than a one-off negative driven by intellectual property payments involving R&D in the month, the services account has improved thanks to the travel and transport accounts, which will help make up for the deficit incurred in other sectors. It is difficult to make a projection with any certainty at the moment.”

Rising oil prices will be one of the factors causing fluctuations in the current account balance.

“A $10 rise in oil prices will leave an annual $8 billion dent in the current account, given Korea relies heavily on imported oil,” another BOK official said.