South Korea's current account surplus hit a 9-month high in July. The balance of current account posted a deficit in April for the first time in seven years, dealing a blow to the nation's economic confidence. The balance switched into a surplus in May and recorded a nine-month high in July. However, some economists said South Korea’s economy is still in unstable conditions as the current account registered a "recession-type" surplus, a surplus created amid a decline in both exports and imports.
The country's current account surplus came to US$6.95 billion (8.32 trillion won) in July, the highest since October 2018, when the country posted a US$9.35 billion (11.19 trillion won) surplus, according to preliminary data from the Bank of Korea (BOK) on Sept. 5. The trade surplus for goods reduced on the double-digit fall in exports, but the current account balance posted a bigger surplus on the improvement in the service account.
However, the current account surplus on year showed a steady downward trend for six months in a row since February. The year-on-year rate of the current account surplus stood at 6.8 percent in January but remained in negative figures at -7.8 percent in February, -5.6 percent in March, -149 percent in April, -42.9 percent in May and -14.5 percent in June.
Both exports and imports were on the decrease from January to July this year, except for April. Exports dipped 5.3 percent in January, 10.8 percent in February, 9.4 percent in March, 11 percent in May and 15.9 percent in June, while imports fell 2 percent, 12.1 percent, 9.2 percent, 1.5 percent and 11.8 percent over the same period.
Exports slid 10.9 percent on-year to US $48.26 billion (5.77 billion won) in July, showing a decreasing trend for eight consecutive months. This was largely due to the shrinkage of global trades and the fall in the price of semiconductors and crude oil. In particular, exports to China shrunk 16.6 percent. Imports went down 3 percent to US$42.08 billion (50.35 trillion won) owing to lower oil prices, having the drop in three months in a row.
The current account surplus reached a 9-month high in July on the increased primary income account which gauges dividend, interest income as well as salary. Among the total, dividend and interest income particularly from investment in overseas securities had a big growth. The dividend income jumped to US$2.89 billion (3.46 trillion won) in July, which was the third largest figure in history, while the interest income touched a new monthly high of US$1.9 billion (2.27 trillion won) in the month.
With the won-U.S. dollar exchange rate surpassing 1,200 won, the dividend income surged to US$2.89 billion (3.46 trillion won) in July as conglomerates collected a large amount of earned surplus from overseas subsidiaries in the form of dividend. The interest income hit a record high of US$1.9 billion (2.27 trillion won) as the sharp rise in investments in overseas bonds.
The fact that the service account deficit narrowed to US$1.67 billion (2 trillion won) in July also boosted the current account surplus. The size of the service account deficit continued to fall for four consecutive months. The service account deficit decreased US$1.42 billion (1.70 billion won) from July in 2018 and the figure was the highest drop in seven months after US$1.76 billion (2.11 trillion won) in December last year.