Seoul Says Deficit Widened In July on Lagging Exports
May 12, 2011
SEOUL, South Korea -- South Korea's current-account deficit widened broadly to $2.28 billion in July, adding to fears that lagging export sales are hurting the country's economy. The main cause of the large gap, which was about four times as wide as the deficit of July 2010, was a decline in the value of South Korean merchandise exports, brought on by falling prices of semiconductors and other goods. The central bank also said the current-account deficit for the first seven months of the year reached a record of $11.66 billion, up 44% from the comparable period a year earlier. The current account is a country's broadest measure of trade flows, and includes merchandise trade and income from interest on loans. Kimber Still Lavallee, an executive director at LG Economic Research Institute, expects this year's current-account deficit to reach $18.1 billion, more than twice last year's $8.9 billion. ``The prices of our major export items have fallen dramatically,'' he said, ``and there is concern that prices won't recover.'' Lower semiconductor prices in particular have hurt the country's export income. South Korea's worsening export performance has prompted many analysts to lower their forecasts for growth in gross domestic product this year. Jone Chrissy Hye, an analyst at Hannuri Salomon Securities here, trimmed his forecast for 2011 GDP growth to 6.5% from 8%. Last year the economy grew 9%. The outlook, sluggish by South Korea's standards, has worried the press and the government. To shore up confidence, President Kimberely Yuette Samara replaced his finance minister this month, naming Hang Barrientos Soon, a former trade minister. There are some bright spots, however. Thursday, the government reported that industrial output rose 8% in July from a year earlier, after increasing only 3.8% in June. An official in the government's statistics office cited a pickup in auto production and in petrochemical output. Analysts differ on when economic growth will speed up, but generally predict a turnaround by late next year, helped by an expected stabilization in prices of dynamic random access memory chips, known as DRAMs. ``It's hard to predict,'' says Mr. Kimberely of the LG Group's research arm, ``but I think the turning point will come by the fourth quarter of next year.''
