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Shadow Deepens in Korean Economy amid 32 Consecutive Month Surplus
Economic Shadow
Shadow Deepens in Korean Economy amid 32 Consecutive Month Surplus
  • By Jack H. Park
  • November 28, 2014, 02:58
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South Korea posted a current account surplus for 32 consecutive months in October, surpassing US$9 billion. If this trend continues, South Korea will record the greatest surplus in history this year.

Nevertheless, South Korea is not happy about the surplus, considering its quality, because a structural depression is worsening as profits are reduced owing to the strong won and a domestic recession. To make matters worse, the outlook of the export front will be even more dim, as China implements a lot of policies including the one of limiting improvement trades.

The Bank of Korea (BOK) reported that current account surplus recorded US$9.01 billion in October. The current surplus increased over 20 percent from US$7.41 billion in September. This is the fourth largest surplus amount, following that in October (US$11.1 billion) and May (US$9.9 billion) last year, and May (US$9.08 billlion) this year.

By sector, the goods balance surplus in October increased sharply to US$8.66 billion from US$ 7.51 billion in September. The services balance deficit decreased a little to US$250 million from US$280 million, and the original income balance surplus including wages and investment incomes increased to US$970 million.

The current surplus has continued for 32 months in a row. If this trend continues, the surplus this year would surpass the surplus (US$81.15 billion) of last year and the amount (US$84 billion) predicted by the BOK, recording the largest amount in history.

However, there are more worries than expectations when considering the balance sheets of imports and exports. The positive profit is not due to increased exports based on higher competitiveness, but the result of reduced imports. Actually, among goods surpluses that showed over US$1 billion in a month, the exports increased by 2 percent, with US$52.16 billion, while the imports increased only by 0.6 percent, with US$43.51 billion. This is a typical structure of a recession surplus.

Furthermore, the export front is covered with dark clouds as performances of improvement trades and commission trades are getting worse due to China's policy of nurturing the industries to replace imports. The commission trade income of October was US$9.91 million, down US$2 billion from the last month. The net export amount of commission trades dropped below US$10 million in 20 months since February last year.