Bank of Korea:

"Cannot exclude possibility of current account deficit…

Surplus for year-round"

Bank of Korea: “Cannot exclude possibility of current account deficit...

Surplus for year-round”

With the weakening of the current account balance, the Bank of Korea has made the outlook that for a while, the possibility of the current account balance showing a deficit cannot be excluded. However, the “Re-opening” (resumption of economic activities) of China shall have a positive effect on Korea’s exports, resulting in an improvement in the trade balance and an overall surplus for the year-round.

In a report titled “Assessment of the Recent Trade/Current Account Balance and Future Outlook”, which was inserted in “Report on Financial and Economic Issues”, on March 8, the Bank of Korea revealed that “With the weakening of the trade balance, the deterioration of the current account balance is also inevitable. However, because primary income is growing faster than expected, we can buffer the trade deficit.”

From this year, the Bank of Korea newly established the system in which dividends of overseas subsidiaries cannot be included in gross revenue. As a result, the increase in the inflow of dividends shall improve the primary income account balance. In regard to the January trade balance for this year recording a historically high deficit, the Bank made the assessment that “Various factors contributed in complex ways, such as the rapid drop in semiconductor prices in terms of exports, and ongoing import of energy in the winter season in terms of imports.”

According to the Ministry of Trade, Industry and Energy, the trade balance of Korea in January 2003 was USD 12.65 million, the largest drop in the deficit in history. In February, Korea recorded a deficit of USD 5.3 bln, and sustained the one-year long deficit that began in March of last year. The Bank of Korea noted that there are expectations over improvements in the trade balance due to the “Re-opening” of China, but there is need to continue observing the matter as the statistics are not out yet.

“Such factors will continue for a while, and we cannot exclude the possibility of a deficit in the current account,” remarked the Bank of Korea. “Followed and helped by the great drop in wintertime energy demand, China Reopening, and leap in the IT economy, the trade balance shall improve and turn to a surplus.” Notably, China Reopening is to have a positive effect on our exports, through recovery of the Chinese economy and inflow of tourists.

The general outlook of major forecasting agencies is that the global IT economy will also rebound after the second half of this year, as the excess in inventories are adjusted during the first half. “Due to the structure of Korea’s exports and imports, which are greatly influenced by external conditions, this year our current account balance shall show the appearance of being up in the first half and sluggish in the second half. Therefore, it is likely to record a surplus overall,” remarked the Bank of Korea. “Uncertainties remain, depending on how the global IT economy unravels, and other factors, so we must continue to be wary of the situation.”

(Provided by Newsys)