The current account balance with China recorded the largest deficit ever, largely due to the downturn in the semiconductor sector which led to a significant drop in the scale of goods exports. In stark contrast, the current account surplus with the United States achieved a record high for the second consecutive year, buoyed by strong exports of passenger cars among others.
According to the 2023 Regional Balance of Payments announced by the Bank of Korea on June 19, the current account deficit with China last year was $30.98 billion. This marks the second consecutive year of deficit since recording a $8.45 billion deficit in 2021, which was the first time in 21 years since the $760 million deficit in 2001. The deficit last year was the largest ever recorded. The goods account balance recorded a deficit of $33.6 billion last year, a significant increase from the $10.2 billion deficit in 2022 due to a sharp decrease in exports, mainly semiconductors. The service balance recorded a $60 million deficit. The primary income balance was similar to the previous year at $2.42 billion in surplus, and the investment income balance was also not much different at $2.48 billion compared to $2.33 billion in 2022.
On the other hand, the current account surplus with the United States increased significantly. It rose by $22.28 billion from the previous year to $91.25 billion last year, the largest surplus ever. The goods balance increased from a surplus of $59 billion to $82.16 billion due to an increase in exports of passenger cars and a decrease in imports of raw materials. Interest income increased, leading to a primary income balance of $18.68 billion in surplus, and the investment income balance also increased from $12.56 billion in 2022 to $17.95 billion last year. All are the largest surpluses ever. The service balance recorded a $7.49 billion deficit due to a decrease in transportation imports.
Improvement with Japan, the Middle East, and the EU
The current account deficit with Japan reduced to $16.86 billion, a decrease from the $17.69 billion deficit in 2022. The goods balance deficit decreased from $15.55 billion to $11.9 billion due to a decrease in imports of chemical products and precision instruments, while the service balance turned into a $1.48 billion deficit from a $2.49 billion surplus due to an increase in travel payments. The current account balance with the European Union (EU) increased to a $6.39 billion surplus compared to a $5.51 billion surplus the previous year. The current account balance with Southeast Asia recorded a $51.67 billion surplus. This is the result of a decrease in exports of semiconductors and petroleum products, which led to a decrease in the goods balance from $66.32 billion in 2022 to $43.08 billion last year. The Middle East recorded a $73.74 billion deficit.
Direct overseas investment by Koreans decreased to $35.44 billion from $65.8 billion the previous year. This is the result of a decrease in direct investment in most regions except the United States, which recorded an all-time high of $29.81 billion. Foreign direct investment in Korea also decreased to $15.18 billion from $25.04 billion the previous year.
In securities investments, overseas investments in stocks by Korean nationals significantly decreased due to risk-averse sentiments caused by interest rate hikes, dropping from $40.57 billion the previous year to $29.76 billion last year.
Bonds increased from $5.03 billion to $15.61 billion during the same period due to expectations of profits from high interest rates and valuation gains from future interest rate cuts, mainly in the United States and EU regions. Foreign investment in Korean securities increased from $19.78 billion in 2022 to $37.92 billion last year, turning into net purchases mainly in the EU region due to expectations of a recovery in the IT market and strong car exports.
