Bank of Korea Explains ‘International Balance of Payments (Provisional)’ in March 2024
Current Account Surplus of $16.84 billion in the First Quarter
“Increased Imports in April…Goods Balance Surplus Shrinking, Current Account at Balanced Level”, ‘[Edaily Ha Sang-ryul Reporter] The Bank of Korea hinted at the possibility of an upward revision of the annual current account surplus forecast. This indicates that the existing surplus of $52 billion could be expanded further. The Bank of Korea also forecasted that the current account could approach a balanced level in April. It is assessed that the surplus in the goods balance and primary income balance has decreased, and the deficit trend in the service balance continues.’,
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| Seung-cheol Shin, Economic Statistics Director, explaining the key features of the ‘International Balance of Payments (Provisional)’ for March 2024 at the Bank of Korea in central Seoul on the morning of the 9th. (Photo=Bank of Korea) |
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, ‘Seung-cheol Shin, Director of the Economic Statistics Department at the Bank of Korea, indicated during a press briefing on the ‘International Balance of Payments (Provisional) for March 2024’ on the 9th that the size of the annual current account surplus could be revised upward. Director Shin said, “The current account surplus in the first quarter amounted to $16.84 billion, reaching approximately 85% of the survey agency’s forecast for the first half of the year. It performed well.” He mentioned, “Although we expected a $52 billion surplus for the year, we see the potential for an upward revision.”‘,
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, ‘Furthermore, the Bank of Korea forecasted that the current account in April could approach a balanced level. Director Shin stated, “We can expect a significant reduction in the surplus of the goods balance and even a deficit in the primary income balance.” He also said, “Although we cannot predict a deficit in the current account in April, we expect to see a continued deficit trend in the service balance, which may prevent it from approaching a balanced level.”‘,
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, ‘With April’s customs-based import returning to a positive trend, it is anticipated that the magnitude of the goods balance surplus will decrease, and the surplus in the primary income balance will also decrease due to factors such as overseas foreign dividend payments. Additionally, a deficit trend in the service balance, especially centered around travel balance, is expected to continue.’,
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| The press briefing for the ‘International Balance of Payments (Provisional)’ for March 2024, held at the Bank of Korea in central Seoul on the morning of the 9th. From left are Young-woo Lee, Manager of the International Balance Team; Seung-cheol Shin, Director of the Economic Statistics Department; Hye-jeong Moon, Manager of the International Balance Team; and Yong-bi Ahn, Manager of the International Balance Team (Photo=Bank of Korea) |
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, ‘The following is a Q&A session with Director Shin.’,
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, -The first half’s current account forecast is a surplus of $19.8 billion. The annual forecast is a surplus of $52 billion. A surplus of $16.9 billion was recorded in the first quarter. Is there a possibility of an upward revision in the forecast? Also curious about downside factors.,
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, ‘△(Director Shin) The current account surplus in the first quarter amounted to $16.84 billion, reaching approximately 85% of the survey agency’s forecast for the first half of the year. Although we expected a $52 billion surplus for the year, we see the potential for an upward revision. The current account showed a positive trend until the first quarter, but with many overseas foreign dividend payments in April, there is a possibility of adjustments in the current account. Starting from May, with the goods balance at the center, the surplus trend is expected to continue, considering these factors comprehensively, we see a trend of potentially revising the annual forecast due to the strong performance in the first quarter.’,
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, ‘Regarding the current account, risk factors such as international oil prices and fluctuations in the won-dollar exchange rate, developments in geopolitical risks in the Middle East, as well as changes related to the global supply chain reorganization between the US and China, remain uncertain factors. We may be able to confirm these in the revised economic outlook by the survey agency in May.’,
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, -The current account surplus came out significantly higher than expected in the first quarter. What are the reasons for the surplus exceeding expectations?,
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, ‘△(Director Shin) The reason for the current account surplus being higher than expected in the first quarter is that, as previously mentioned in the evaluation of the current account for March and the first quarter, overall export recovery has been quite strong. IT products are showing steady growth, and in addition, sectors such as automobiles, ships, general machinery, etc., are also seeing an increase. Looking at April, based on customs-based exports, all major export items are showing growth, both in volume and regionally. Although the current account surplus trend is primarily nominal, with differences in real terms, IT products are leading the growth in exports, while there is a significant decrease in imports. This situation is reflected in the nominal current account surplus widening. By observing the trends in the first quarter, it is seen that although a surplus is occurring in the goods balance, there is a need to monitor factors such as fluctuations in the won-dollar exchange rate and international oil prices.’,
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, -What is the possibility of a current account deficit in April? Imports based on customs data increased for the first time in 14 months, leading to a potential increase in imports on the international balance sheet.,
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, ‘△(Director Shin) As the customs-based trade balance surplus decreased in April, this could act as a factor leading to a decrease in the surplus in the goods balance. April is a period where foreign investment dividends are concentrated, leading to temporary deficits in the primary income balance and possibly even in the current account. As there is not much data available yet, it is expected that the surplus in the goods balance will shrink, and the deficit in the primary income balance will be at this level. While a current account deficit in April cannot be predicted, the continued trend of a deficit in the service balance suggests that it may not approach a balanced level. With imports turning positive in April, adjustments need to be made in the goods balance on the current account side. As imports have turned positive in customs data, there is a possibility of goods imports turning into a surplus in the current account.’,
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, -Even though exports or the goods balance are performing well, the deficit in the service balance continues. When do you foresee improvement in this area?,
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, ‘△(Director Shin) The service balance is divided into six categories: processing services, transportation, travel, construction, royalties, and other incomes. When looking at the structural characteristics of our economy, it is not easy for the service balance to turn to a surplus. In the case of processing services, many companies have expanded overseas subsidiaries, leading to a lot of overseas production, resulting in a deficit. Transportation services show deficits due to operations of foreign shipping companies such as ocean carriers. Travel balance traditionally records a deficit as there are more domestic travelers than inbound foreign tourists. Construction services show a surplus as construction companies engage in construction projects overseas. In categories such as intellectual property rights and other business services, while there are receipts sent by overseas subsidiaries, there are traditional deficits due to royalties or payments made by companies abroad. When looking at the service categories, it seems inevitable that deficits will occur. To turn the service balance to a surplus, various changes are needed in government policies, economic structure, and industrial structure. To reduce the chronic deficit in the travel balance, infrastructure is needed to attract more foreign tourists to enter the country. Significant efforts are required both policy-wise and structurally for the surplus trend to settle and stabilize, which may take considerable time and effort.’,
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, -The net asset increase in the financial account is substantial. Is this the largest margin ever seen since October 2020? Could you please explain the significance of this indicator?,
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, ‘△(Director Shin) We earn a lot of foreign currencies in a current account surplus from abroad. Looking at the global economic environment, our companies are engaging in many overseas ventures. Consequently, significant direct investment is being made, and substantial earnings in the current account lead to an increase in net assets in the financial account in the long run. The size may vary depending on how much direct investment is being made abroad or how much foreign investors are investing domestically, but fundamentally, as the current account surplus increases, the net assets in the financial account increase. Although the increase in financial net assets may be influenced by various factors, it is a natural phenomenon due to our export-driven economic structure that earns a significant amount from exporting and benefits the current account through foreign dividends in the primary income balance. Therefore, the increase in financial net assets does not necessarily need to be viewed negatively.’,
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, -Regarding the GDP surprise in the first quarter, it was not explained why it occurred. Are there any aspects that can be explained by the international balance of payments statistics?,
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, ‘△(Director Shin) The explanation provided during the press briefing on the GDP in the first quarter was insufficient. The unexpectedly high GDP growth was due to both the strong contributions of the net exports and domestic demand components. The contribution from net exports has been high for the fourth consecutive quarter. This is reflected in the balance of payments, where exports of IT products are on the rise, and imports are decreasing, resulting in a larger contribution from net exports. As for the GDP calculation of goods and services trade flows, nominal data from the current account is used directly. The growth rate of the current account surplus played a significant role in contributing to growth in the GDP. As for domestic demand, it was expected to remain weak due to high commodity prices, a strong exchange rate, and high interest rates. Construction investment was expected to weaken due to a sluggish construction sector or factors related to real estate project financing, but the actual performance showed that construction investment was higher, and private consumption was also stronger than expected. Private consumption was boosted by the release of new mobile phone products and favorable weather conditions that encouraged outdoor activities. Construction investment showed unexpectedly strong figures for January, which is typically a period when construction activities are less active due to winter weather. January numbers were positive, and overall, the first quarter saw high construction investment figures. Given that the construction industry was performing poorly in the fourth quarter of last year, and some large final projects were successful, construction investment turned out to be higher than expected. Both private consumption and construction investment showed higher figures than expected, resulting in a strong contribution to domestic demand growth. Whether domestic demand and net exports will continue to contribute to growth is a point of interest. It is essential to monitor whether domestic demand, driven by private consumption and construction investment, will remain strong. It is crucial to observe whether the surplus contribution of net exports will continue, considering that import trends turned positive in April. Both domestic and net export contributions are key factors to watch.’,
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, ‘△(Hye-jeong Moon, Head of the International Balance Team) Financial assets are at their highest level since October 2020.’,
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, -Is the non-semiconductor export also showing a positive trend?,
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, ‘△(Director Shin) Until the first quarter, the export performance of goods showing positive trends in various sectors, not just semiconductors, is evident. Last year, automobiles had good performance, and from the second half of last year until the first quarter, semiconductors also showed strong performance. Even this year until the first quarter, not only semiconductors but also other IT products showed positive trends. Displays, computer storage devices, and wireless communication devices showed positive trends. Looking at April’s customs-based exports, compared to March, major export items have increased both in volume and regionally. The only negative aspect among the main export items is for some products such as electric vehicles, secondary batteries, iron and steel, facing some weakening demand. Overall, the export growth trend seems to be spreading to items beyond IT products.’,
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, -You mentioned exchange rates and international oil prices as risk factors for the current account. The exchange rate hit 1400 won last month, and international oil prices also rose, so what impact do you foresee on the current account?,
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, ‘△(Director Shin) Recently, international oil prices increased significantly in March and April according to the international benchmark, but a reversal was seen in May. Concerns arise over the impact of oil prices on imports based on import price levels. Generally, there is about a 1-month lag. Although the import value of raw materials increased in April based on customs data, the rise in oil import prices is reflected. Oil import prices rose slightly in March due to the increase in international oil prices. For April customs-based raw material imports, there was an increase in volume imports, and rises in oil import prices were reflected. It is essential to be cautious about how the rise in international oil prices in March and April will lead to an increase in oil import prices. However, as there is a reversal in May for international oil prices, monitoring is necessary.’,
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, ‘Regarding exchange rates, there is a global trend of a strengthening US dollar. The impact of exchange rates on customs-based trade balance, international balance of payments, and goods balance is more limited than before. With the current focus on the Chorange phenomenon, it is essential to consider how it will affect our trade balance and current account. Japan and South Korea do not have many competitive export items, and thus the impact of the yen on our economy is seen as limited. While the weakening yen may lead to fewer Japanese tourists entering South Korea, during a strong dollar phase, there are analyses suggesting that Japanese individuals may choose domestic travel over long-distance trips, potentially boosting domestic tourism. The impact of a weakening yen on the domestic economy has both positive and negative effects.’,
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, -The semiconductor export growth rate has shown a positive trend. How many consecutive months has this been?,
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, ‘△(Head Moon) Since November of last year, it has been positive, making it six consecutive months. Looking at customs data until April, it has been positive for six months.’,
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