South Korean December Current Account Surplus Narrows

South Korea posted its smallest current account surplus in four months in December as imports increased and more people bought foreign currencies to spend on overseas study and vacations.

The surplus narrowed to $146.7 million compared with $280 million in December 2005, the Bank of Korea said in Seoul today. The surplus shrank to a four-year low of $6.1 billion in 2006

South Korea's current account surplus will narrow to a 10- year low this year, the central bank forecasts, as cooling global demand curbs exports, which have driven the longest economic expansion in a decade. Overseas shipments fell for the first time in two years in the fourth quarter, slowing economic growth as a stronger currency eroded exporters' earnings.

``South Korea is likely to see the current account shrink this year, as exports are expected to cool,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. ``Still, a drop in oil prices will help prevent us seeing a deficit.''

The current account is the broadest measure of trade in Asia's third-largest economy because it covers the flow of goods, services and investment income across borders.

Reducing the surplus in December, the deficit on South Korea's services account, which measures the international flow of travel, transport costs and royalties, widened to $1.9 billion from $1.4 billion a year earlier, today's report showed.

The won bought 941.95 per U.S. dollar at 10:16 a.m. in Seoul, little changed from 942.45 in late Asian trading yesterday. The yield on the three-year government bonds fell 2 basis points, or 0.02 percentage point, to 5.01 percent.

Central Bank Forecast

South Korea's current account surplus will narrow to $2 billion in 2007, which would be the smallest in 10 years, the central bank forecast last month. The nation had a $15 billion surplus in 2005.

``The current account surplus is likely to be smaller on a monthly basis this year,'' Jeong Sam Yong, an official at the central bank's statistics department told reporters today.

The trade surplus narrowed to $2 billion in December from $5.7 billion in November and widened from $1.7 billion a year earlier, today's report showed. Exports on a customs-cleared basis rose 12.6 percent to $28.9 billion last month from a year earlier.

Gains in the won, Asia's third-best performer last year, can reduce earnings for exporters such as LG Electronics Inc. and Hyundai Motor Co. by making their products more expensive overseas. The won rose 8.6 percent versus the dollar in 2006.

Won Curbs Exports

Hyundai Motor, South Korea's largest automaker, said last week that fourth-quarter profit fell 22 percent as a stronger won lowered overseas earnings. Exports account for about 57 percent of the carmaker's sales.

Kia Motors Corp., an affiliate of Hyundai, posted a loss for the second quarter in a row on the stronger won. Hankook Tire Co., South Korea's biggest tiremaker, said this month its 2006 profit declined 22 percent on higher materials costs and a rising currency.

Economic growth slowed to 0.8 percent in the fourth quarter as exports fell for the first time in two years and consumer spending remained weak, a central bank report showed on Jan. 25. Exports account for 40 percent of the economy.

South Korea's government forecast overseas shipments will increase at the slowest pace in five years in 2007 as slackening global economic growth, led by the U.S., cuts demand for Korean mobile phones, televisions and cars.

Exports will probably increase 10.4 percent to $360 billion this year, the Commerce Ministry said this month.
South Korea had an income account surplus of $285 million last month compared with an $335.8 million surplus a year ago.

The income account tracks the flow of interest payments, investment income and wages between South Korea and its trading partners.
After seasonal adjustment, the current account surplus was $600.5 million in December compared with $914.2 million a year ago.
source:www.bloomberg.com