South Korea’s current account posted a slight deficit in April on the back of dividends paid to foreign stock investors amid a shrinking trade surplus.
The Bank of Korea announced on Wednesday that the current account balance turned to a deficit of US$660 million in April. A month earlier, South Korea’s current account had posted a surplus of $4.82 billion in March. One year earlier, the surplus had been $1.36 billion in April 2018.
Even so, the government forecasts that the current account will post a surplus of more than $60 billion this year as it is expected to expand in the second half. Last year, the current account was in the black to the tune of $76.4 billion with a surplus of $28.9 billion in the first half and $47.5 billion in the second half.
The trade surplus shrank to $5.67 billion from $9.62 billion in April, due to falling exports hit by the worsening US-China trade war.
The service account continued to post a deficit of $1.43 billion, but the gap narrowed from $1.98 billion in April as more tourists from Japan and China visited South Korea.
The primary income account also posted a deficit of $4.33 billion due to dividend payments to foreign investors, but the gap narrowed from $5.62 billion a year earlier. The dividend income deficit came to $4.99 billion, down from $6.36 billion a year earlier.
The primary income account indicates the difference between income such as wages and investment income earned by Koreans abroad and earned by foreigners in Korea.
Dividend payments to foreign investors reached $6.78 billion, down from $7.66 billion a year earlier. The dividends sent overseas decreased as earnings of listed companies have shrunk since the fourth quarter of last year.
“The market expected the dividends to be the same size as the one of last year, but the actual amount was smaller than the estimate,” Yang Ho-seok, who heads the Bank of Korea’s balance of payments team, told Asia Times.
The primary income deficit, however, surged from a deficit of $740 million in March, making it the main factor behind April’s current account deficit.
The current account deficit of April is likely to turn to a surplus from May. For the year, the central bank expects the current account to post a surplus of $24.5 billion in the first half and $42 billion in the second half of 2019.
“The current account balance is expected to swing back to the black in May and post a surplus of more than $60 billion this year,” Lee Eok-won, director of the Economic Policy Bureau at the Ministry of Finance, told Asia Times. “Many other institutions agree with us.”
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