The annual surplus of the current account for last year is expected to exceed the Bank of Korea's forecast of $90 billion. This is due to the ongoing surplus of the current account for seven consecutive months, supported by record-high exports. However, conditions this year are likely to worsen compared to last year, as there is potential for increased global uncertainty following the inauguration of U.S. President-elect Donald Trump.
◇ Current account surplus of $83.5 billion from January to November... "Surplus expected in December too"
According to the Bank of Korea on the 8th, the current account recorded a surplus of $9.3 billion in November last year. The current account has maintained a surplus for seven consecutive months since recording a deficit of $290 million in April due to increased foreign dividends.
Exports have increased for 14 consecutive months, driving the current account surplus. Exports in November last year totaled $57.1 billion, a 1.2% increase from a year earlier. Exports are reflected in the merchandise balance (exports minus imports), service balance, primary income balance, and transfer income balance, with the merchandise balance being the largest component of the current account.
By item, semiconductor exports, which account for 20% of total exports (customs basis), surged by 29.8%, while exports of ships and electronic products increased by 76.5% and 16.2%, respectively. However, exports of automobiles decreased by 30.9% due to production disruptions caused by strikes at parts manufacturers at the end of last year, and petroleum products dropped by 19.4% due to falling international oil prices.
The service balance recorded a deficit of $2.09 billion, mainly due to processing services, travel, and other business services. As the effect of China's National Day holiday in October faded, the travel deficit expanded from $480 million to $760 million. The primary income balance shrank from $3.45 billion to $1.94 billion.
The Bank of Korea projected that last year’s annual target of a current account surplus of $90 billion would be surpassed. This is because the cumulative current account until November totaled $83.54 billion, and the trade balance recorded a surplus of $6.5 billion in December. Although both the trade balance and merchandise balance are calculated as the difference between export and import amounts, the trade balance includes freight and insurance costs, making its surplus smaller than that of the merchandise balance.
Song Jae-chang, Director General of the Financial Statistics Department of the Bank of Korea, said, "The current account is expected to record a substantial surplus centered on the merchandise balance in December," adding, "The surplus size is expected to exceed the Bank of Korea's forecast of $90 billion."
◇ Current account surplus of $80 billion projected this year... "U.S. tariff policy is variable"
However, this year, the current account is likely to be affected by the tariff policy of the newly emerging Trump administration. If the "universal tariff" policy (which imposes tariffs of up to 20% on imported goods) proposed by President-elect Trump is implemented, the global trend of protectionism is expected to strengthen, potentially dampening global trade. The current account, which is heavily dependent on trade, could also be impacted.
In particular, production of corporations operating in Mexico and Canada, where President-elect Trump has indicated tariffs will be imposed, is expected to be affected. Director General Song noted, "As income from corporations in Mexico and Canada decreases, the primary income balance may decline, and exports from domestic corporations that supply intermediate goods to these countries could also decrease."
The trade conflict between China and the U.S. is also expected to influence Korea's current account. The Bank of Korea believes that both positive and negative impacts will occur. Director General Song stated, "Depending on how the U.S. imposes tariffs on China, our exports to China may decline, but there are also parts where Korea has shifted to a competitive relationship with China, so we could see some indirect effects."
The recent surge in the won-dollar exchange rate to about 1,450 won is also a variable. Director General Song said, "When exchange rates rise, it enables exporters to sell at higher prices, but import corporations for raw materials face increased production costs. However, due to the overseas transfer of production facilities, exchange rate elasticity has weakened, and the focus has shifted from price to quality and technological competitiveness, so we need to monitor the effects closely."
The Bank of Korea plans to present a revised economic outlook considering external uncertainties next month in February. Last November, the Bank of Korea projected this year’s current account surplus to be $80 billion. Director General Song stated, "The February economic outlook will include analyses related to the timing and intensity of the actual implementation of Trump’s tariff policy, as well as responses from neighboring countries."