Key View
- We at Fitch Solutions retain our expectations for South Korea’s current account surplus to narrow slightly to 4.5% of GDP in 2022, due to a confluence of upside and downside factors on its goods trade balance.
- Although the external demand for semiconductors still remains strong amid the ongoing global chip shortage, we expect the economic slowdown in China to weigh on Chinese demand for South Korean goods.
- As South Korea is a net oil importer, we believe that the possibility of crude oil prices averaging even higher poses downside risks to our current account forecast.
We at Fitch Solutions retain our expectations for South Korea’s current account surplus to narrow slightly to 4.5% of GDP in 2022, from our estimates of 4.9% of GDP in 2021. Overall, our outlook for goods trade still remains strong, given the stable external demand for semiconductor exports, amid the ongoing chip shortage. That said, our forecast reflects our expectations for the current account surplus to narrow slightly for two key reasons: Firstly, we expect the moderation of the current account surplus to be driven mostly by the economic slowdown in China, as Beijing continues to pursue a Covid-zero strategy, which will in turn lead to lower demand for South Korean imports. Secondly, we believe that the rising oil prices amid the escalation in the Ukraine Crisis is likely to see imports rise more quickly and hence result in a smaller trade surplus, given that South Korea is a fairly large crude importer.
