Retaliation Effect
Korea’s service account deficit is expected to amount to about US$30 billion this year as a result of China's retaliations against the deployment of the Terminal High Altitude Area Defense Missile (THAAD) on the Korean Peninsula. This is a spike of US$12.4 billion from last year's deficit.
The current account surplus is expected to reach US$70 billion this year, according to the Bank of Korea's revised July economic forecast. But the figure is a drop of US$28.7 billion from last year's surplus of US$98.7 billion.
The current account surplus is expected to slip sharply this year as the service account deficit is expected to climb further although the trade surplus will fall from US$120.4 billion last year to US$107 billion this year. The service account deficit sat at US$17.6 billion last year but is expected to swell to US$30 billion this year due to a drop in Chinese tourists to Korea triggered by the aftermaths of the THAAD issue. The service balance is composed of transportation, travel, construction, etc., and among them, the travel balance has a high percentage.
THAAD deployment has had a major impact on Korea’s economic growth this year. The Bank of Korea forecasts a growth rate of 2.8 percent this year, up 0.2 percentage points from April. Even though the aftermaths of THAAD deployment were applied to this projected growth rate as an element to lower Korea’s economic growth rate by 0.2 percentage points but the effects of the drop in Chinese tourists additionally pulled down the rate by 0.1 percentage point.