Surplus Contributes to External Economic Stability
The Bank of Korea announced on Nov. 30 that South Korea’s current account surplus has continued since 2000 and shown a substantial increase since 2012. “The current account surplus-to-GDP ratio was 1.5 percent on average from 2000 to 2011 and 5.1 percent on average from 2012 to this year,” it said, adding, “This year’s ratio is estimated at 5 percent, and the ratio may gradually decrease down the road but is expected to maintain a relatively high level for a while.”
According to the bank, the figure for the period of 2012 to 2021 has to do with long-term structural and mid-term macroeconomic factors, and the effect of these factors has been dominant since 2018 in particular.
“The long-term factors include an increase in the ratio of those who save the most, that is, those in the age group of 45 to 64, and people’s intention to save more to prepare for their old age,” the bank said, adding, “The mid-term factors include positive net external assets, an increase in government spending and tax cuts.” It also said that South Korea’s participation in global value chains has increased, this increase has resulted in higher productivity and export competitiveness, and these have increased income and savings to contribute to current account improvement.
According to the central bank, the contribution of economic conditions and international oil prices, which are economic and temporary factors, has shown little change and the contribution of financial factors such as exchange rates is not that significant.
“The contribution of the demographic factors to South Korea’s current account surplus is likely to gradually decrease as the population is aging to lower the savings rates of households,” it explained, continuing, “At the same time, the contribution of the fiscal factors is likely to fall as social welfare expenditures increase and the contribution of the net external assets is likely to increase as the surplus is accumulated.”
The bank mentioned that an excessive current account surplus is undesirable as it implies an economic imbalance and yet the current surplus of South Korea can contribute to its external economic stability in that it is a non-key currency country with high external economic dependence.