Overseas investment banks are increasingly projecting that South Korea’s current account surplus as a share of gross domestic product (GDP) will approach 20% for the first time in history this year. The combination of memory semiconductor supply shortages, surging prices, and expanded long-term supply agreements (LTAs) is producing an export-driven surplus that is qualitatively different from the “recession-type surplus” seen during the Asian financial crisis era.<\/p>\n
According to data compiled by the Center for International Finance on September 6, eight major overseas investment banks project South Korea’s current account surplus ratio to GDP will average 16.0% this year as of late August. That marks a 1.3 percentage point increase from 14.7% at the end of July.<\/p>\n
The upward revisions reflect strong semiconductor exports. Citi raised its forecast from 16.5% to 18.2%, Goldman Sachs from 13.9% to 18.7%, and Nomura from 15.7% to 19.7%. Excluding UBS, which has not revised its forecast for an extended period and still projects 4.0%, the average of the remaining seven investment banks rises to 17.7%.<\/p>\n
Based on Bank of Korea and International Monetary Fund (IMF) statistics, a current account surplus ratio approaching 20% would be unprecedented since balance-of-payments data collection began in 1980. The previous record was 10.1% in 1998, immediately following the Asian financial crisis.<\/p>\n
The surplus at that time was a recession-type surplus, driven by sharply declining nominal GDP and imports amid economic contraction. This year’s surplus is fundamentally different in nature. Park Jung-woo, an economist at Nomura Securities, said, “Historically, South Korea’s current account surplus expansion occurred when domestic investment declined and savings increased due to domestic recession.” He added, “The current surplus growth is driven by positive factors\u2014improved terms of trade and increased export values stemming from enhanced semiconductor export competitiveness.”<\/p>\n
Gap with Taiwan narrows from 10 percentage points to 3.4 percentage points<\/p>\n
The current account surplus gap with Taiwan, which also has a high proportion of semiconductor exports, is narrowing rapidly. Seven major investment banks project Taiwan’s current account surplus ratio to GDP will average 20.6% this year, unchanged between late July and late August. Barclays did not provide a forecast.<\/p>\n
Comparing the average forecasts of six investment banks excluding Barclays and UBS, South Korea stands at 18.1% and Taiwan at 21.5%, with Taiwan ahead by 3.4 percentage points. As recently as the end of last year, using the same methodology, South Korea’s forecast for this year was 7.0% and Taiwan’s was 17.5%, with the gap exceeding 10 percentage points. The gap has effectively shrunk to one-third of its previous level in just eight months.<\/p>\n
JPMorgan is the only one of the eight investment banks projecting that South Korea’s current account surplus ratio will surpass Taiwan’s this year. The bank’s forecasts are 18.1% for South Korea and 13.0% for Taiwan. Park Seok-gil, an economist at JPMorgan, wrote in a South Korean economic outlook report last month that “South Korea’s balance of payments is entering historically unprecedented territory.”<\/p>\n
He stated, “This year, the technology sector-led goods surplus and terms-of-trade improvement effects are likely to overwhelm the burden from oil price shocks, further expanding the current account surplus.” He projected that “the surplus could reach approximately 20% of GDP.”<\/p>\n
The structural differences in the two countries’ flagship semiconductor industries underlie the narrowing gap. Taiwan is foundry-centric, meaning process price fluctuations are relatively modest, while South Korea’s primary export\u2014memory semiconductors\u2014is experiencing surging prices due to supply shortages. Citi noted that the expansion of LTAs by Samsung Electronics and SK Hynix could sustain the semiconductor export boom stably for years to come.<\/p>\n
Bank of America (BofA) suggested that memory spot prices could rise an additional 10\u201320% in September as supply shortages persist amid robust demand from AI data centers.<\/p>\n
Bank of Korea sharply raises forecast… a stabilizing factor for FX markets<\/p>\n
The Bank of Korea also sharply raised its current account surplus forecast for this year in its revised economic outlook released on August 27, from $250 billion (approximately 337.8 trillion won) to $450 billion (approximately 608 trillion won). That would be 3.7 times last year’s surplus of $123.1 billion (approximately 166.3 trillion won), which was the previous record high.<\/p>\n
The Bank of Korea expects the surge in semiconductor demand driven by expanding global artificial intelligence (AI) investment, combined with price spikes from supply constraints, to generate the massive surplus. The cumulative current account surplus for January through July this year already reached $233.09 billion (approximately 314.9 trillion won), nearly four times the $59.82 billion recorded in the same period last year.<\/p>\n
In July alone, the current account posted a surplus of $42.08 billion (approximately 56.9 trillion won). The goods balance recorded a surplus of $40.43 billion (approximately 54.6 trillion won), while the primary income balance remained strong as dividend income from overseas direct investment and reinvested earnings increased.<\/p>\n
The large-scale current account surplus is also affecting the foreign exchange market. The Center for International Finance assessed that the expansion of the current account surplus and easing selling pressure on South Korean stocks by foreign investors have clearly improved foreign currency supply-demand conditions, contributing to the stabilization of the won-dollar exchange rate since July. However, it identified South Korean residents’ expanding overseas stock investment as a factor that could worsen foreign currency supply-demand conditions going forward.<\/p>\n
Economist Park Jung-woo said, “A sufficient current account surplus can serve as a major shield for South Korea’s economy, which is highly dependent on external trade,” adding that “corporate operating profit growth will also increase national income.” However, he cautioned that “conflicts over distribution and increased asset market volatility from excessive liquidity creation are side effects,” and expressed concern that “pressure to expand investment in the United States will also intensify.”<\/p>\n","protected":false},"excerpt":{"rendered":"Overseas investment banks are increasingly projecting that South Korea’s current account surplus as a share of gross domestic…\n","protected":false},"author":2,"featured_media":144536,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[845,73314,26891,3166,8229,31,13905,73316,73315,276,275,33],"class_list":["post-144535","post","type-post","status-publish","format-standard","has-post-thumbnail","category-south-korea","tag-bank-of-korea","tag-center-for-international-finance","tag-citi","tag-goldman-sachs","tag-jpmorgan","tag-korea","tag-nomura-securities","tag-park-jung-woo","tag-park-seok-gil","tag-samsung-electronics","tag-sk-hynix","tag-south-korea"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/144535","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/comments?post=144535"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/144535\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media\/144536"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media?parent=144535"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/categories?post=144535"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/tags?post=144535"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}