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The country's current account swung to a surplus in June for the first time in seven months on the back of robust exports, the Bank of Korea said Monday.
The current account surplus reached US$1.82 billion last month, a turnaround from a US$377.5 million deficit in May, the central bank said in a report. The country had posted shortfalls since its current account balance swung to a deficit in December, with the January shortfall hitting an 11-year high to a revised $2.75 billion.
The country's accumulated deficit in the first half of the year has decreased to US$ 5.35 billion, but the figure is still far bigger than US$1.63 billion posted for the same period last year.
The bank attributed the turnaround to robust exports, leading the trade balance to a surplus of US$3.48 billion in June, up from US$612.5 million the previous month on brisk exports.
Customs-cleared exports grew 16.6 percent last month year-on-year to $37.3 billion, thanks to strong demand from emerging markets and crude producers, the bank said. For the first six months, exports gained 20.4 percent on-year, to US$213.9 billion.
The strong exports were mainly driven by petroleum and steel products shipments. The country exported US$18.35 billion worth oil products in the first half, up 82.8 percent from a year earlier, the central bank said. In June alone, outbound shipments of petroleum products surged 119.4 percent from a year earlier, to US$4 billion.
South Korea is the world's fifth-largest crude buyer, importing almost all of its fuel needs, but exports back more than half after refining the crude into gasoline, diesel and other petroleum products.
Exports took up 53.3 percent of local refiners' sales last year, up from 51 percent in 2006 and 48.4 percent in 2005. South Korea imported 434.1 million barrels of crude in the first six months, down 1.2 percent from a year earlier, and refined 429.1 million barrels, according to the Energy Ministry.
The central bank predicted South Korea's current account balance to stay in the black in July on brisk exports and slowing crude prices. Current account, the broadest measure of trade, service and investment flows into and out of the country, signals South Korea's economic health heavily based on export, economists say.
But domestic demand has been sharply slowing, threatening the economic health of the country. Quarterly private consumption dipped 0.1 percent in the second quarter, marking the first minus growth in four years, the BOK said. In the first quarter, private consumption gained 0.4 from the previous three months.
Due to declining private demand, the South Korean economy grew at an annual rate of 4.8 percent in the second quarter, sharply down from 5.8 percent for the previous quarter.
Out of the year-on-year GDP growth rate of 4.8 percent in the second quarter, net exports – the difference between exports and imports – contributed 3.3 percentage points, while domestic demand only contributed 1.8 percentage points, BOK data shows.
With the declining private consumption, exports accounted for a record high 64.9 percent of the nation's gross domestic product in the second quarter, pushing domestic demand's share to a record low level.
The portion of exports to the country's GDP was 60.9 percent in the second quarter last year, up from 57.6 percent in the same period in 2006 and 52.5 percent in 2005's second quarter.
Economists say the growing reliance on exports makes South Korea more vulnerable to external risks, such as a slowdown of the global economy and fluctuations in foreign exchange markets.
The slowing demand is largely attributable to rising inflation caused by high import costs of energy and raw materials. The country's consumer inflation jumped 5.5 percent on-year in June, the fastest increase in 10 years.
"Domestic demand is likely to remain weak for the time being due to high inflation," said Yu Byung-kyu, a senior economist at the private Hyundai Economic Research Institute.
Samsung Economic Research Institute economist Kwon Soon-Woo said private consumption has entered "a sluggish phase." "Private consumption is rapidly weakening, amid signs of slowing exports, damaging the country's economic growth," he said.
