Korea’s Current Account Surplus Set to Top BOK Forecast: Economy

South Korea’s current-account surplus is set to exceed the central bank’s estimate for this year, offering support for the won amid volatility in financial markets.

The excess in the broadest measure of trade was at an all-time high of $11.4 billion in November, taking the surplus so far in 2014 to $81.9 billion, the Bank of Korea said today in Seoul. Declining oil prices were the main reason for last month’s gain, said Jung Joon, a director for the central bank.

The monetary authority forecast on Oct. 15 that the gap would reach $84 billion before narrowing in 2015 to $70 billion. It’s likely to provide stability in South Korea’s financial markets should volatility increase due to external events such as interest-rate increases by the Federal Reserve next year, according to Citigroup Inc.

“There are some upside risks to our $87.2 billion current-account surplus forecast for this year and $81.6 billion for 2015 should oil prices drop further,” said Chang Jaechul, a Seoul-based economist at Citigroup. This could limit weakness in the won next year, which will be fueled by the yen’s decline and a stronger dollar, Chang said.

Citi forecasts the won to weaken to 1,134 against the dollar by the end of June, from 1,098.70 as of 11:48 a.m. in Seoul, according to Chang.

South Korea’s goods trade surplus widened to $10.2 billion in November from $8.49 billion the previous month, the central bank reported today. The finance ministry projected in a Dec. 22 statement that the current-account surplus would narrow to $82 billion in 2015 from this year’s estimated $89 billion. The Bank of Korea releases an updated economic outlook next month.

Exports Data

Exports in Asia’s fourth-biggest economy probably increased 0.1 percent this month from a year earlier, after a 2.1 percent drop in November, economists surveyed by Bloomberg projected before official data due Jan. 1.

Oil has dropped 45 percent this year, set for the biggest annual loss since 2008, as the highest U.S. production in more than three decades contributed to a global surplus. Today it traded near the lowest price in more than five years.

“Supply of the dollar exceeds demand in South Korea’s currency market, and I expect the trend to continue with the current-account surplus,” said Park Dae Bong, a Seoul-based currency trader for Nonghyup Bank. “Won will face appreciation pressure in 2015 due to the surplus.”

South Korea’s currency dropped 4 percent this quarter, the fourth-biggest loss among 11 regional peers, according to data compiled by Bloomberg.

The median estimate in a Bloomberg survey of 27 analysts is for the won to weaken to 1,128 by the end of the first half of 2015.

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