In Aug., the current account posted a surplus of more than $9.1 billion, setting an all-time high for the month. Overall exports turned to a decline for the first time in three months as exports of steel and machinery faltered under U.S. tariff pressure, but the current account widened because raw material imports dropped sharply on falling energy prices. The Bank of Korea forecast that this year's current account will achieve a surplus of $110 billion, its Aug. outlook. However, it said that starting next year, the effect of U.S. tariffs will fully kick in, reducing exports and affecting the current account.
◇ Aug. current account surplus $9.15 billion… 28 straight months in the black
According to the Bank of Korea's preliminary balance of payments released on the 2nd, the current account surplus in Aug. came to $9.15 billion, the largest ever for the month. Korea's current account has been in surplus for 28 consecutive months. The surplus streak is the second longest since the 2000s, after the 83-month run from May 2012 to Mar. 2019.
The goods balance (exports minus imports), which accounts for the largest share of the current account, led the surplus. The goods surplus was $9.4 billion, the second largest on record for the month after Aug. 2018 (+$10.93 billion). Compared with the previous month ($10.78 billion), it was $1.63 billion smaller, but it was $2.42 billion larger than a year earlier ($6.73 billion).
Although exports fell, imports fell even more, widening the current account surplus. Exports in Aug. declined 1.8% on-year to $56.44 billion. Semiconductors (+26.9%) and passenger cars (+7.0%) increased, but items affected by U.S. tariffs, such as steel (-11.7%) and machinery (-8.2%), were weak. During the same period, imports fell 7.3% as imports of coal (-25.3%) and petroleum products (-20.3%) plunged.
The drop in imports stemmed from lower raw material prices. International oil prices have been on a downtrend as OPEC+, a coalition of major oil producers including OPEC and Russia, has moved to increase output. As of the 1st, U.S. crude was about $62 per barrel (about 87,000 won), down more than 20% from about $80 (about 113,000 won) in mid-Jan. Song Jae-chang, Director General of the BOK's Financial Statistics Department, said, "With raw material prices falling, energy imports on a customs-clearance basis decreased by 13.6%," adding, "For non-energy items, imports of capital goods and consumer goods continue to rise."
The primary income balance, which reflects flows of wages, dividends, and interest, posted a surplus of $2.07 billion, adding to the current account surplus. The surplus for the month was the second largest on record after Aug. 2019 (+$2.43 billion).
However, the services balance, which covers transactions such as travel, transportation, and intellectual property royalties, recorded a deficit of $2.12 billion, showing weakness.
◇ "This year's surplus outlook will be achieved… U.S. tariff impact to kick in next year"
The BOK projected that it will comfortably achieve this year's annual current account surplus outlook of $110 billion. The cumulative current account surplus for Jan.–Aug. reached $69.3 billion, or 63% of the outlook, and strong exports of semiconductors and automobiles make it likely that a surplus exceeding $10 billion will reappear in Sept. The fact that the effect of quarterly dividends disappears in Sept., potentially increasing the primary income balance surplus, also supports this view.
Director General Song said, "Given that the trade balance in Sept. exceeded that of Aug., the current account in Sept. will be around $10 billion," adding, "Considering this trend, the current account going forward will follow the BOK's forecast path." Both the trade balance and the goods balance are calculated by subtracting imports from exports, but the trade balance includes freight and insurance in imports, making the surplus smaller than in the goods balance.
However, the BOK expected that the effect of U.S. tariffs will begin to be fully reflected in the current account starting next year. The U.S. government is currently imposing high tariffs under Section 232 of the Trade Expansion Act on automobiles, steel, aluminum, copper, lumber, and derivatives of steel and aluminum. It is also investigating bio, semiconductor, aerospace parts, and drones, and additional tariffs are expected to be imposed in the future.
Director General Song said, "Even before Aug., U.S.-bound exports showed a declining trend from May to Jul., centered on items heavily affected by tariffs," adding, "Initially, domestic corporations will respond by using inventories or diversifying suppliers, so the impact will appear gradually, but next year it will become full-fledged, centered on exports to the United States."