S Korea's current account surplus hits new high in July

South Korea's current account surplus rose to a new high in July as imports fell at a steeper pace than exports amid weakening demand and falling oil prices, the central bank said Wednesday. The current account surplus reached US$6.1 billion in July, up from a revised $5.88 billion the previous month, according to the Bank of Korea (BOK). The current account is the broadest measure of cross-border trade. The July data marked the sixth straight month of the surplus run, worth a cumulative $19.85 billion, according to the BOK. The record surplus cannot be seen as purely positive because the surplus of the goods balance widened due to falls in exports and imports, indicating demand is weakening amid the bleak global economic outlook, analysts said. The central bank said the full-year surplus may surpass the BOK's estimate of $20 billion if there are no additional external shocks. "In August, the size of the surplus is expected to be smaller than that of July due to summer vacations, but the underlying trend of the surplus is likely to continue," Yang Jae-ryong, the director of the BOK's monetary and financial statistics division, said at a press conference. The BOK downplayed concerns about the surplus pattern, driven by a drop in trade, saying the volume of exports and imports rose last month, though their prices retreated amid falling oil costs. "The value of exports and imports fell, mainly driven by price falls. Another factor was a high comparison base last year, when overseas shipments got a boost from the fallout of Japan's earthquake and tsunami," Yang noted. Market watchers said the BOK's view is too rosy, however, given that sharp falls in imports means sputtering domestic demand, sapping economic growth. "Retreats in imports pointed to sluggish domestic demand, spawning concerns about the economic momentum." The surplus may put upward pressure on the local currency, which appreciated about 1.3% to the dollar this year. A stronger won is feared to crimp already-weakening exports, which account for about 50 percent of Asia's fourth-largest economy, according to analysts. Foreigners' buying spree of Korean bonds raised money inflows, putting downward pressure on market interest rates as they viewed Korean assets as relatively sound. But exports are cooling down, hit by the protracted eurozone debt crisis and China's slowing economy. South Korea's goods balance logged a surplus of $5.32 billion in July, up from a revised $5.05 billion the previous month, the BOK noted. The value of the goods balance surplus marked the largest surplus in 21 months. Exports and imports declined in July from a year earlier and compared with the previous month. Overseas shipments fell 4.1% on-year to $46.58 billion and imports declined 5.8% to $41.27 billion. The service account, which includes outlays by South Koreans on overseas trips, posted a surplus of $579.2 million last month, larger than $170.1 million in June. Meanwhile, the capital and financial account, covering cross-border investments, posted a net outflow of $7.94 billion in July, compared with a net outflow of a revised $5.27 billion the previous month, the central bank said. The central bank revised up its 2012 forecast of the current account surplus to $20 billion from $14.5 billion, but the full-year surplus numbers are smaller than the $26.5 billion tallied for 2011.