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The current account surplus reached US$4.91 billion last month, compared with a deficit of $1.35 billion in September, according to the Bank of Korea. The monthly surplus is the biggest since 1980 when the central bank began to compile such data.
For the first ten months of this year, the country logged a cumulative current account deficit of $9.01 billion, compared with a surplus of $5.26 billion a year earlier, the bank report said.
The persistent shortfalls this year, mainly caused by high oil prices, have worsened the country's dollar shortages and damaged its credit standings. The current account is the broadest measure of trade, service and investment flows into and out of the country.
October's trade balance posted a surplus of $2.79 billion, rebounding from a deficit of $890 million in September. The shortfall of the service account marked $50 million last month, shrinking $1.24 billion the previous month on the back of sharply reduced spending on overseas trips due to the sliding local won currency against the U.S. dollar and Japanese yen.
But the capital account, which tracks cross-border investments, posted a net outflow of $25.53 billion in October, the biggest-ever monthly deficit, compared with a $4.78 billion shortfall a month earlier, as local lenders repaid part of their foreign loans.
The central bank attributed October's current account surplus to the recent pullbacks in prices of oil and raw materials. South Korea, the world's fifth-largest oil importer and second-biggest gas buyer, is vulnerable to international price rises because it buys almost all of its energy and raw materials needs from overseas.
The central bank expects the country to post a current account surplus in November and December, citing lower import costs of fuel and raw materials.
Yang Jae-ryong, chief of the bank's statistics team, said the current account surplus may post more than US$1 billion in November. "The big current account surplus will help boost South Korea's credit standings and improve the environment of dollar funding for local banks and companies," he said.
Bahk Byung-won, senior presidential secretary for the economy, described October's current account surplus as a "very important signal" on the South Korean economy, battered by fallout from the global financial crisis and a subsequent dollar-funding squeeze.
"Persistent current account deficits early this year were the main factor behind the dollar-funding shortages" that raised doubts about the health of South Korea's economy, which is heavily dependent on foreign trade, Bahk told a television program. "As the current account swung to a surplus last month, market jitters were sharply eased," he said.
"The biggest-ever current account surplus in October is definitely good news for the South Korean economy and it would play as a new positive variable," said Kwon Soon-woo, a senior researcher at Samsung Economic Research Institute. "I expect local financial markets will stabilize next year," he told a conference with foreign journalists.
The institute, the country's top private think tank, forecasts South Korea's economy to expand 3.2 percent next year, far above foreign agencies' projections of 2 percent or a little higher.
“The (South) Korean economy will grow by 3.2 percent in 2009, 1.2 percentage point less than its estimated 2008 growth rate (of 4.4 percent)," the institute said in its "outlook for Korea's Economy in 2009."
The growth of private consumption would slow to merely 1.7 percent next year, down from a 2.0 percent expansion this year, while the country's export growth would plummet to 3.2 percent, sharply shrinking from an 18.5 percent growth in 2008, the report said.
"But the economic growth would not slow to less than 3 percent next year as concerted efforts to stanch the global financial meltdown should calm financial markets and a mild inflation on lower fuel import costs," said Kwon of the institute, which is run by the country's biggest conglomerate, Samsung Group.
The projection came just after the International Monetary Fund revised down its prediction for South Korea's economic growth rate in 2009 from 3.5 percent to 2.0 percent as the ongoing global financial crisis damages South Korea's domestic spending and exports.
The Organization for Economic Cooperation and Development also cut its forecast for South Korea's growth next year to 2.7 percent. Citigroup forecasts the economy will grow 2 percent next year.
In a gloomier outlook, UBS investment bank last week predicted South Korea's economy would shrink 3 percent next year, while Macquarie estimates the economy would contract 2 percent in 2009.
Kwon and other analysts say the government should accelerate its plans to bolster domestic demand with tax cuts, deregulation and more fiscal spending to keep Asia’s fourth-biggest economy growing.
