Korea’s current account balance recorded a US$ 3.83 billion surplus due to a smaller services account deficit in May 2010
Korea’s account surplus for May 2010 rose to a six-month high due to continued increase in exports and a lower deficit in travel balance. However, the capital and financial accounts, which marked the highest-ever net inflow the previous month, recorded a large net outflow in May. This is due to banks’ repayment of short-term borrowings following a surge in foreign currency supply due to a rising won-dollar exchange rate and new regulations regarding forward exchanges.
According to Bank of Korea’s (BOK) preliminary announcement on the Balance of Payments Trends during May 2010 released on June 29, the current account surplus increased to US$ 3.83 billion, and marking the highest surplus recorded since November 2009. The nation has recorded a positive current account balance for four months in a row since last February when US$ 170 million in surplus was registered.
The goods account balance marked a surplus of US$ 4.18 billion due to an increase in auto and steel exports, but the surplus fell from the previous month’s US$ 5.12 billion. On the basis of customs clearance, goods exports rose to 38.9%, US$ 38.73 billion year-on-year. Exports grew for most regions, including Central and South America (59.5%_60.3%), Japan (31.7%_39.7%), Southeast Asia (44.7%_53%) and the Middle East (10.7%_46.2%). Led by a 79.2% increase in chip exports, exports rose in cars (62.9%_73.9%), steel goods (18.8%_36.6%) and metals (-10.1%_66.8%). Imports also climbed 50.2% to US$ 34.55 billion due to an increase in the export of crude oil and consumer products such as IT devices, cars and grain.
The services account deficit fell to US$ 640 million in May from US$ 1.85 million in May as the travel account deficit decreased to US$ 320 million from US$ 690 million due to smaller spending overseas and outward remittance. The income account turned into a surplus of US$ 300 million in May from a deficit of US$ 1.38 billion the preceding month as external dividends payments decreased. Meanwhile, the current transfers account deficit narrowed to US$ 10 million from the previous month’s US$ 470 million .
“As the exports of chips and cars remain robust, and companies try to bolster their balance sheets ahead of the end of the half-year, the goods balance for June is likely to expand,” said Lee Young-bog, head of BOK’s balance of payments statistics team.
The capital and financial account balance recorded a net outflow of US$ 11.96 billion in May following the US$ 8.56 billion inflow recorded a month earlier. This marks the largest net outflow since November 2008, when a net outflow of US$ 13.48 billion was registered. This shift to outflow is due to an increase in banks repaying their short-term external borrowings, combined with lower foreign investment in stocks, bonds and derivatives in Korea.
Direct investment registered a net outflow of US$ 550 million, down from the previous month’s US$ 1.22 billion, due to a net inflow of foreign direct investment and a fall in outward direct investment. Other investments shifted from a net inflow of US$ 4.65 billion to a net outflow of US$ 10.48 billion.
“As geopolitical risk on the Korean Peninsula is heightened by the financial crisis in Southern Europe, the sinking of the Navy vessel, Cheonan, and the raise in foreign exchange rate, banks spent the temporarily expanded liquidity repaying their short-term borrowing,” said Lee.