Korea narrows current account surplus gap with Taiwan amid chip boom

Korea is rapidly closing the gap with Taiwan in its current account surplus as a share of gross domestic product, with some global investment banks expecting Korea to overtake Taiwan this year, analysts said Sunday.

According to data from the Korea Center for International Finance, the average forecast from eight foreign investment banks for Korea's current account surplus as a share of GDP rose to 16 percent in August from 14.7 percent in July.

The banks are Barclays, Bank of America Merrill Lynch, Citi, Goldman Sachs, JP Morgan, HSBC, Nomura and UBS.

The increase came as several banks significantly raised their forecasts on stronger expectations for semiconductor exports. Nomura expects Korea's current account surplus to reach 19.7 percent of GDP, while Goldman Sachs projects 18.7 percent and Citi cites 18.2 percent.

The ratio shows the size of Korea's current account surplus relative to the size of its economy, allowing for comparisons between economies of different sizes.

Seven investment banks expect Taiwan's current account surplus to average 20.6 percent of GDP this year, unchanged from their July forecast. Barclays did not provide a forecast for Taiwan.

For comparison, the six banks that provided forecasts for both countries put Korea's average at 18.1 percent, compared with 21.5 percent for Taiwan.

That marks a sharp narrowing from last year, when the same six banks forecast Korea's surplus at 7 percent of GDP and Taiwan's at 17.5 percent, a gap of more than 10 percentage points.

Notably, JP Morgan expects Korea to overtake Taiwan this year, forecasting current account surpluses of 18.1 percent of GDP for Korea and 13 percent for Taiwan.

A current account surplus-to-GDP ratio approaching 20 percent would be nearly double Korea's previous high of 10.1 percent recorded in 1998, according to data from the Bank of Korea.

The previous high came in the aftermath of the Asian financial crisis, when a sharp contraction in nominal GDP led to a so-called "recession-driven surplus."

The current situation is different, with the surplus ratio rising on the back of stronger exports rather than a contraction in domestic demand.

"Korea's past increases in its current account surplus were driven largely by recessionary conditions. The current increase, however, is being driven by positive factors, including improved terms of trade and higher export values stemming from strong semiconductor performance," said Park Jeong-woo, an economist at Nomura Securities.

The widening current account surplus comes as Korea's chip exports surge on strong global demand for artificial intelligence-related products.

The country's cumulative exports reached $709.4 billion as of Saturday, surpassing the previous annual record of $709.3 billion set last year, according to the Ministry of Trade, Industry and Resources and the Korea Customs Service.

If the momentum continues, Korea could reach $1 trillion in annual exports for the first time, customs authorities said.

Semiconductor exports were the main driver, with chip exports totaling $281.2 billion in the January-August period, up 169.6 percent from a year earlier and accounting for 40.6 percent of the country's total exports.