South Korea reported its record current account deficit in January due to sluggish exports, the country’s key growth driver, and a widened travel account loss but the central bank forecasts Asia’s fourth-largest economy will log a surplus for the whole of 2023.
Korea’s current account balance dipped into the red in January, swinging to a loss of $4.5 billion from a profit of $2.2 billion in the same month last year, Bank of Korea preliminary data showed on Friday.
This was the largest-ever current account deficit for Korea since the related data started to be compiled in 1980. The previous record-high deficit was a $4 billion loss in April 2020 at the height of the COVID-19 pandemic.
The Korean won weakened against the US dollar on Friday, closing at 1,324.2 versus 1,322.2 a day ago and extending its losing streak for the fifth straight day after flirting with 1,330 earlier in the session, according to the central bank data.
A slump in exports stopped Korea from extending the surplus streak in its current account balance, which briefly returned to a profit in December on gains in dividend payments from a deficit in November.
The country’s worst-ever trade deficit of $12.6 billion in the month was blamed for the record current account deficit.
Goods account swung to a loss of $7.5 billion in January from a year ago when it posted a profit of $1.5 billion. It was the fourth month in a row for Korea to report a goods account deficit after exports shrank 14.9% on-year to $48 billion in the month on a 43.4% contraction in shipments of semiconductors, its key export item.
A 31.4% fall in exports to China, Korea’s biggest trading partner, exacerbated the loss, according to the central bank.
Considering that the country’s exports without semiconductors returned to the black in February thanks to brisk sales of secondary batteries and passenger cars, and its energy imports are expected to drop in March, Korea is forecast to see improvement in the current account balance, the central bank said.
Coupled with anticipated increases in inbound travelers to Korea and primary income account balance, Korea is forecast to report a $26 billion surplus for the whole of 2023, the Bank of Korea projected on Friday. It forecast a $4.4 billion loss in the first half.
BIGGER LOSS IN SERVICES, BUT LARGER GAIN IN PRIMARY INCOME
The country’s services account deficit widened to $3.3 billion in January from $830 million a year ago due to a slowdown in the shipping industry from a slowdown-triggered fall in freight rates and a jump in outbound travelers following the global economic reopening.
The travel account deficit in the month jumped threefold on-year to $1.5 billion with eased COVID-19 restrictions.
But the primary income account extended its gains, amounting to $6.4 billion in surplus versus $1.9 billion a year ago, partly offsetting losses in other accounts.
Income from investments more than tripled to $6.6 billion in January from the same period a year earlier. In particular, dividend payments increased to $5.7 billion from $1.1 billion.
Write to Mi-Hyun Jo at mwise@hankyung.com
Sookyung Seo edited this article.
