September current account surplus for fifth consecutive month…’recessionary’ limits remain (Summary)

South Korea’s current account surplus in September was $5.42 billion, marking the fifth consecutive month of surplus. Although the deficit in the service account widened compared to the previous month, the goods account improved due to strong automobile exports primarily to the U.S. and the European Union (EU), and a recovery trend in semiconductors. However, the ‘recession-type surplus,’ where imports decrease more than exports, continues. The volatility in international oil prices due to the war between Israel and the Palestinian militant group Hamas, and the slower-than-expected recovery of the Chinese economy, remain as variables for our economy.

◆Current Account Surplus of $5.42 billion… Imports Decrease More Than Exports= According to the preliminary international balance of payments statistics announced by the Bank of Korea on the 8th, the current account surplus in September was $5.42 billion. This maintains a surplus trend for the fifth consecutive month after recording a deficit of $790 million in April, followed by May ($1.93 billion), June ($5.87 billion), July ($3.74 billion), and August ($4.98 billion). This is the first time in 14 months since last year, from March to July, that the current account has recorded a surplus for five consecutive months.

However, the cumulative current account balance from January to September decreased by about 35% to $16.58 billion compared to the same period last year ($25.75 billion). By item, the goods account showed a surplus of $7.42 billion for six consecutive months since April, but this is due to the fact that imports decreased more than exports. September exports decreased by 2.4% to $55.65 billion compared to the same month last year, but imports decreased by 14.3% to $48.23 billion. Both the amount and rate of decrease in imports significantly exceeded exports, continuing the pattern of ‘recession-type surplus.’

In terms of exports, passenger cars (9.1%) continued to perform well, but semiconductors (-14.6%), chemical industrial products (-7.3%), and petroleum products (-6.9%) did not reach the performance of a year ago, continuing a decline for 13 consecutive months. However, the rate of decrease in semiconductors and other items is gradually decreasing. Shin Seung-cheol, Director of the Economic Statistics Bureau of the Bank of Korea, explained, “It seems that the semiconductor industry has passed the bottom and entered the recovery phase.”

By region, exports to the U.S. (8.5%) and the EU (6.5%) increased, but exports to China (-17.6%), Southeast Asia (-7.4%), and Japan (-2.5%) were sluggish. Imports decreased by 20.9% due to a drop in energy import prices. In particular, the rate of decrease in the import amount of raw materials such as gas, coal, and crude oil reached 63.1%, 37.0%, and 16.2%, respectively. Amid a 12.2% decrease in imports of capital goods such as semiconductors (-21.4%) and transportation equipment (-5.4%), imports of consumer goods such as grains (-30.3%) also decreased by 9%.

The service account showed a deficit of $3.19 billion. The deficit more than doubled compared to August ($1.57 billion). Although the travel account deficit decreased to $970 million compared to the previous month ($1.14 billion), the intellectual property account turned to a deficit of $670 million. The deficit also increased compared to September of last year ($450 million). Director Shin said, “There were expectations for the entry of Chinese tourists as the Chinese government allowed domestic group tourism in August, but if you look at the numbers in September, the number of Chinese tourists is the highest ever, but it is not visibly increasing.” He added, “The number of entrants is less than half compared to before COVID-19, and the number of passenger planes between Korea and China and other conditions have not fully recovered, and the pattern of Chinese tourists has changed to individual tourism, which seems to be the reason.”

The primary income account showed a surplus of $1.57 billion, mainly due to dividend income. This is the fifth consecutive month of surplus since turning to a surplus in May. The surplus slightly increased compared to the previous month ($1.46 billion), but decreased compared to the same month last year ($2.7 billion).

The net assets in the financial account, subtracting liabilities from assets, increased by $4.52 billion in September. Direct investment increased by $2 billion for domestic investment overseas and by $350 million for foreign investment in Korea. In securities investment, domestic investment overseas increased by $6.57 billion, and foreign investment in Korea increased by $1.37 billion.

◆Surplus trend in October… Recovery in the semiconductor market= The Bank of Korea predicted that the current account will continue to show a surplus trend in October. Director Shin predicted, “The scale of the current account surplus in October will be similar to that in September,” and “In the fourth quarter as a whole, the current account surplus will continue due to the recovery trend in semiconductors and the continued good performance of automobile exports.” Director Shin explained, “There may be a decrease in the surplus scale compared to the third quarter due to uncertainties in oil prices and an increase in energy imports for winter heating, but it will be consistent with the annual forecast of $27 billion.” The Bank of Korea predicted that this year’s current account will record a surplus of $27 billion. If an average monthly surplus of $3.5 billion is recorded from October to December, it can meet the forecast.

Experts believe that it is difficult to be optimistic about future prospects, even though the current account surplus trend has continued for five months and the semiconductor market, a major export product of ours, has entered a recovery phase. This is because if the conflict in the Middle East spreads, international oil prices may soar, negatively affecting the current account, and global economic uncertainty continues.

Professor Heo Jun-young of the Department of Economics at Sogang University said, “It is positive that semiconductors are showing improvement in the high-end sector and price reduction effects, but the problem is that the overall speed is not fast.” He diagnosed, “The recovery of the Chinese economy, the largest consumer, is slow and the effect of Chinese tourists is not as large as expected.” Professor Heo said, “The impact of Israel and Palestine is expected to work in October,” and “The variables to get out of the recession-type surplus are three, including the global economy and the semiconductor market, including the Chinese economy, but looking at the recovery speed, a full rebound is possible in the middle or later next year.”

Professor Yoo Hye-mi of the Department of Economics at Hanyang University said, “The semiconductor market is slowly reviving, but there is still uncertainty about how quickly exports will recover in terms of specific items and demand.” She expressed concern, “The trend of high interest rates in the U.S. is taking time to revive consumption and investment, and the recovery speed of exports is slower than expected, increasing uncertainty about the economy next year.”

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