South Korea posts worst deficit in goods balance as trade slows

SOUTH Korea posted its worst goods deficit on record, underscoring strains in the trade-reliant economy that’s facing slowing global demand, elevated oil prices and rising interest rates.

The shortfall in the goods balance came in at US$4.4 billion in August, worsening from US$1.4 billion in the previous month, according to data released on Friday (Oct 7) by the Bank of Korea (BOK). The overall current account also fell into the red, posting a deficit of US$3.1 billion, the worst in more than two years.

The deficit intensifies concerns about the strength of the won at a time when the Federal Reserve is accelerating the pace of its policy tightening. The Korean currency has been Asia’s worst performer this year after the yen and the BOK may raise its own rate by a bigger-than-usual margin to try to help support the won.

Korean policymakers have signalled a deficit might occur in August, pointing to mounting trade shortfalls. Rising commodity prices, supply-chain snags and slowing demand for semiconductors have been among the factors weighing on exports.

Korea has now posted a current account deficit twice this year. Finance Minister Choo Kyung-ho told reporters on Thursday that the annual balance would exceed US$30 billion, dismissing concerns that the deficit could trigger a more significant fallout. BLOOMBERG