In May, the current account recorded a surplus of $10.14 billion, marking 25 consecutive months of surplus. It is the third longest surplus since the 2000s. The surplus size is the third largest ever as of May. However, at the same time, the impact of tariffs from the United States is becoming stronger. A ‘recession-type surplus’ is emerging, as imports are decreasing more than exports, and exports to major countries have also shrunk. The Bank of Korea (BOK) projected that the impact of tariffs would become more pronounced in the second half of the year.
◇ Current account surplus of $10.14 billion in May… 3rd largest on record as of May
According to the 'balance of payments (preliminary)' released by the Bank of Korea on the 4th, the current account recorded a surplus of $10.14 billion in May. This marks the 25th consecutive month of surplus, making it the third longest surplus record since the 2000s, following the periods from May 2012 to March 2019 (83 months) and from May 2020 to July 2022 (27 months). The surplus of May is the third largest ever, following $11.31 billion in 2021 and $10.49 billion in 2016.
This is greatly influenced by the surplus recorded in the goods account, which has the largest share of the current account. The surplus of the goods account in May was $10.66 billion, increasing by $1.67 billion from the previous month ($8.99 billion). Compared to a year ago ($8.82 billion), it is $1.84 billion more. The goods account has maintained a surplus for 26 months since April 2023 ($660 million).
However, concerns are raised regarding a 'recession-type surplus,' as imports have decreased significantly more than exports. Exports recorded $56.93 billion, a decrease of 2.9% compared to the same period last year, marking a decline after four months. While semiconductor exports (customs basis) increased by 20.6%, categories such as petroleum products (-20.0%) and steel products (-9.6%) saw significant decreases. By region, exports decreased in all markets except Southeast Asia (8.2%) and the European Union (EU) (4.0%). Imports decreased to $46.27 billion, a drop of 7.2%, primarily due to raw materials (-13.7%).
However, the Bank of Korea reports that a recession-type surplus has not yet emerged. Director General Song Jae-chang said, "A recession-type surplus occurs when imports decrease more significantly due to sluggish domestic demand while exports are declining." He added, "The current decreases in exports and imports result from more significant external factors, such as the trade environment and falling oil prices, rather than from domestic issues, making it hard to view them as a recession-type surplus."
The primary income account, which reflects flows of wages, dividends, and interest, recorded a significant surplus, aiding the current account surplus. In May, the primary income account surplus was $2.15 billion, a substantial increase from the previous month (-$190 million). In April, dividends paid to foreigners led to a sharp decrease in the dividend income account, but this effect disappeared in May, resulting in a surplus.
◇ BOK: 'Impact of U.S. tariffs to become more pronounced in the second half'
The Bank of Korea projected that the impact of U.S. tariff measures would become significant in the second half of the year. The trend is already evident in exports of automobiles and steel, which are both subjected to a 25% tariff. According to exports in the first half of the year (customs basis), automobile exports decreased by 2.1% compared to the same period last year, while total steel exports fell by 3.2%. In particular, exports of automobiles to the U.S. decreased by 16.4%, and exports of steel to the U.S. dropped by 4.3%.
Director General Song noted, "Currently, the increase in tariffs has not been passed on to sales prices, but it is expected that price adjustments will occur in the second half." He added, "As corporations expand local production in response, domestic production may decrease, making the decline in exports, particularly in tariff-affected categories, more pronounced in the second half."
Nevertheless, the BOK's forecast of a current account surplus of $37.8 billion for the first half of the year is expected to be exceeded. From January to May, the cumulative current account surplus reached $35.11 billion, achieving 92.9% of the target. Considering the trade balance released earlier this month, which recorded a surplus of $9.1 billion, the current account surplus for the first half is likely to exceed $40 billion. Although both the trade balance and goods account measure the difference between export and import values, the trade balance includes freight and insurance costs, resulting in a smaller surplus compared to the goods account.
Director General Song stated, "The first-half results are better than the BOK's expectations, so it is expected that a current account surplus close to the high $40 billion range will be achieved." He added, "In the second half, while exports are likely to slow down, a sharp decrease in imports driven by falling oil prices would likely maintain a substantial surplus." However, he cautioned, "There is increasing uncertainty regarding the U.S. reciprocal tariff measure that ends on July 9, so we need to monitor the situation closely."