Korea’s Trade Surplus Forecast Falls

The Bank of Korea substantially lowered its forecast of Korea’s current account surplus for this year from the previous estimate of 4.0 billion dollars to the “balance level.”

A balance-level current account means that there can be a “zero” surplus and even a deficit under certain circumstances.

“Soaring international oil prices are driving down the surplus in goods trade, while growing overseas travel is pushing up the travel account deficit. Thus, a current account surplus of four billion dollars will be hard to achieve this year. The current account balance will be near the balance level,” Governor Lee Sung-tae of the BOK said in a press conference held right after the Monetary Policy Committee had frozen the overnight call rate for September at 4.5 percent per year yesterday.

“We expect to see a small deficit in the current account balance for August. Current account balance will turn positive after September but only a modest surplus will be possible this year,” he added.

Korea recorded a current account deficit of 638.5 million dollars from January to July, a big decline from the 9.9254 billion dollar surplus of the same period last year.

In the “2006 Economic Forecast” released last December, the BOK forecasted a current account surplus of 16 billion dollars, but it has revised down the forecast to a 10 billion dollar surplus in March, to a 4.0 billion dollar surplus in July to the balance level now.

Just when the bank released “International balance of payments trend for July” on August 30, it was standing by its forecast of a 4.0 billion dollar current account surplus for 2006.

“Given the large foreign currency reserve, there will not be much problem even if the current account reaches the balance level or even turns negative. Nevertheless, if such a situation is prolonged, Korea will lose its growth momentum burdening the economy,” Oh Mun-seok, a senior economist at LG Economic Research Institute said.

Meanwhile, the consumer expectation index, which shows consumers’ expectation of the economy six months later, has fallen for seven consecutive months to 93.7 in the consumer sentiment survey of August released by the National Statistical Office yesterday.