SEOUL, Jan. 31 (UPI) -- South Korea's current account surplus plunged to a four-year low last year due to high energy import costs and a widening deficit in services, the central bank said on Wednesday.
Economists say the country's current account balance is expected to swing to a deficit this year for the first time since the 1997 Asian financial crisis, sounding the alarm about the country's long-awaited economic recovery.
Current account balance, the broadest measure of trade, service and investment flows into and out of the country, reflects a country's economic health, according to economists.
The country's current account surplus more than halved to $6.1 billion in 2006 from $15 billion a year earlier, the lowest level since a $5.39 billion surplus in 2002, the Bank of Korea said. South Korea posted $28.1 billion in account surplus in 2004 and $11.9 billion in 2003.
In December, the current account surplus stood at $146.7 million, down from $4.24 billion in November and $280 million a year earlier, marking the poorest current account posting since the country suffered a $641 million deficit in July 2006.
Bank officials attributed the sinking surplus to ballooning service deficit and high prices of crude and raw materials.
"Despite robust exports, the current account surplus fell sharply last year due to a jump in overseas tourist spending, and high oil and commodity import costs," said Jeong Sam-yong, head of the central bank's balance of payments statistics team.
The service account deficit soared to a record $18.8 billion last year, up 32 percent from $13.7 billion in 2005, driven by a surge in spending on overseas trips. The travel account deficit jumped 35 percent to $12.9 billion last year.
Despite a double-digit increase in exports, the trade surplus fell to $29.2 billion in 2006 from $32.7 billion a year earlier because of increased energy import costs.
Customs-cleared exports jumped 14.5 percent on-year to $325.7 billion in 2006 on the back of brisk shipments of steel, semiconductors, handsets and ships despite the strong local currency against the U.S. dollar.
But the bullish exports were offset by a 23.1 percent surge in crude import costs last year. The country's total imports surged 18.4 percent to $309.3 billion.
Energy-poor South Korea, the world's fourth-largest oil importer and second-largest gas buyer, is vulnerable to rises in oil prices because it imports almost all of its crude oil requirements, more than 80 percent of which comes from the volatile Middle East.
The income account balance, which tracks wages for foreign workers and dividends, posted a deficit of $538.6 million in 2006, a drop from a $1.56 billion deficit the previous year.
The capital account balance, which tracks the flow of cross-border investment, marked a net inflow of $18.62 billion last year compared with a net inflow of $4.76 billion the previous year.
The central bank said the current account surplus is expected to further shrink to $2 billion this year, but many economists warn the current account balance would swing to a deficit due to a falling trade surplus and a widening services deficit.
A possible current account deficit would further damage the country's already faltering private consumption and employment, they say.
Samsung Economic Research Institute, the country's top private think tank, forecast a current account deficit of $4.6 billion, for the first time since 1997 when South Korea posted $8.2 billion in current account deficit.
Hyundai Economic Research Institute also said the country is expected to register $3 billion in current account deficit, citing sluggish exports and high energy import costs.
Exports alone have powered the economy's growth in recent years amid a prolonged slump in private consumption caused by the bursting of a consumer credit bubble in 2002 that left millions of consumers saddled with credit card debts.
But South Korea's export growth is expected to slow this year due to an economic slump in the United States, one of biggest markets for South Korea, Hyundai said.
The won is also expected to continue to gain against other currencies, hurting price competitiveness in South Korea's exports by making them more expensive and cut into exporters' earnings. The won has remained flat against the U.S. dollar so far this year after gaining 28 percent over the past three years.
