Korea posts world's No. 2 current account surplus in first half, behind China

Korea's current account surplus for the first seven months of this year already runs to nearly twice its total for all of last year, driven by a semiconductor export boom.

Through June, the surplus was second only to China's among the major economies Bank of Korea (BOK) compared, ahead of Germany, Japan and Taiwan. The dollars flowing in from exports are building a buffer that underpins the country's external position.

The July current account showed a surplus of $42.1 billion, according to preliminary balance of payments figures the BOK released Friday. It was the 39th consecutive monthly surplus and the second largest on record, behind June's all-time high of $49.7 billion.

The cumulative surplus from January to July reached $233.1 billion, 3.9 times the $59.8 billion recorded over the same period last year and 1.9 times last year's full-year total of $123.1 billion. Korea's surplus trailed China, Germany, Japan and Taiwan last year. Its first-half figure of $191 billion has now passed the last three, according to the central bank's preliminary count.

The bank's own forecast is within reach. It raised its projection for this year's surplus last month to $450 billion from $250 billion. Another $216.9 billion over the remaining five months would meet it, and June and July alone produced $91.8 billion.

"If the surplus holds at somewhere around an average of $43 billion a month over the next five months, we can comfortably reach the annual forecast we set out," said Yoo Seong-uk, head of the financial statistics division at the BOK. 

Exports are usually stronger in the second half, and the bank expects the semiconductor run to continue.

Semiconductors drove the July figure. The goods balance showed a surplus of $40.4 billion, also the second largest on record. Exports rose 65.3 percent from a year earlier to $100.5 billion, above $100 billion for a second straight month. Semiconductor exports were up 176.3 percent and computer peripherals 344.5 percent. Shipments rose across every major market, by 96.2 percent to China, 74.7 percent to Southeast Asia, 69.1 percent to the United States and 55.6 percent to the European Union.

Imports grew 21.7 percent, well short of the pace of exports. Semiconductor manufacturing equipment rose 60.1 percent and semiconductors 56.7 percent. Rising operating profits at the overseas units of Korean chipmakers pushed the dividend income surplus up to $3.8 billion.

Consumption was the weak spot. Consumer goods imports fell 3 percent, the first decline in 15 months, and passenger car imports dropped 25.4 percent. The travel account swung to a deficit of $340 million as the summer holiday peak coincided with Constitution Day, restored this year as a public holiday for the first time in 18 years and falling on a Friday, creating a three-day weekend. That widened the services deficit to $2 billion.

A record surplus of this size supports the won and Korea's standing with foreign creditors. Foreign exchange reserves rose by $14.3 billion in August to $442.3 billion, the largest monthly increase on record, and the country's capacity to earn dollars has strengthened alongside it.

Money is leaving too. Korean residents increased their overseas securities holdings by $13.6 billion in July. Some of what exporters earn is going back out as investment abroad, which helps explain why the won has not appreciated as quickly as a surplus this large would suggest.

BY KIM WON [[email protected]]