Current account records 24th consecutive surplus

The current account balance continued its bullish run in January as the Bank of Korea reported a surplus for the 24th consecutive month. If the streak continues in February, it would break the record set in 2003.

Despite significantly slower growth in exports compared to the previous month, the current account was able to post a surplus, largely due to a sharp drop in imports.

However, some have raised concerns over the long string of surpluses that represent a significant contribution to the improvement of the nation’s economic fundamentals and set Asia’s fourth-largest economy apart from other emerging markets.

At the same time, it indicates a widening gap between thriving exporters and the domestic market and raises the possibility of conflicts with trading partners, particularly over foreign currency exchange rates.

According to the central bank, the current account surplus last month was $3.6 billion, a year-on-year increase of 35 percent. But due to the Lunar New Year holiday, according to the BOK, it was less than half the $6.4 billion surplus reported in December.

The central bank is confident that if the momentum continues, the current account balance will easily reach this year’s target of $55 billion. Last year’s current account surplus was a record $70 billion.

“When you factor out the seasonal factor Lunar New Year holidays], last month’s current account balance maintained similar growth movement to the previous month,” said a BOK official.

The trade account went from $5.7 billion in December to $3.3 billion last month, though it was 21 percent larger year-on-year.

Exports inched up 0.2 percent last month from a year earlier to $47.2 billion but shrank from $48.3 billion in the previous month. Imports, on the other hand, recorded a 1.4 percent year-on-year decline to $43.9 billion.

Exports to Europe saw the biggest increase among trading partners last month, surging 24 percent to $4.7 billion after increasing less than 2 percent in December. Exports to Southeast Asia grew 2.9 percent, after falling 10 percent in December to $10.3 billion.

However, exports to China and the United States, which were the driving force in the second half of 2013, have fallen. Exports to China - Korea’s largest trading partner - slowed significantly, growing 0.7 percent year-on-year to $11.5 billion. This is a sharp drop from the 8.3 percent growth reported in December.

Exports to the United States, which expanded 13 percent in December, turned around last month, declining 2 percent to $4.9 billion.

Exports to South America also reversed course from a 19 percent increase the previous month to plummet by 23 percent.

The decline in exports to Japan continued to gain momentum last month, slipping from a 12.6 percent drop in December to nearly 20 percent last month against the backdrop of intensifying geopolitical conflicts.

By product, computer chips continued to be a big contributor to export growth, showing the sharpest increase of 13 percent year-on-year to $4.7 billion. Mobile products such as smartphones reported the second highest year-on-year growth (8.8 percent to $3.1 billion), while electronic consumer goods and electric products inched up 0.8 percent to $13.4 billion.

Thanks to growing optimism about global recovery, steel products expanded 2.1 percent compared to 6.4 percent in December.

Steel, a key export since the global financial crisis of 2008, has struggled of late and posted a 17 percent year-on-year decline in November.

Recording the biggest export decline in January, displays lost 13.7 percent to $1.9 billion. Exports of automobiles went into reverse, going from 14.3 percent growth in December to a 2.5 percent decline last month to $3.6 billion.

Meanwhile, a recent report by Hana Financial Group raised concerns over an excessively large current account surplus.

“For a country that has a small open economy and has experienced both the financial crisis of the late 1990s and the global crisis in 2008, maintaining a current account surplus is important,” said Kim Young-joon, a researcher at the Hana Institute of Finance.

“However, keeping a large current account surplus has the potential to create conflicts in trade and currency exchange with trading partners [including forced appreciation of the Korean won against the U.S. greenback].

“But most of all, if the surplus largely results not from further strengthening the competitiveness of export goods but from a stagnant domestic market, it is a sign that there is a serious structural problem.”

The researcher noted that since the Asian financial crisis of the late 1990s, Korea has focused heavily on exports while keeping its currency weak. At the same time, the service industry and travel accounts registered surpluses only three times - 1998, 2012 and 2013.

BY lee ho-jeong [ojlee82@joongang.co.kr]