Korea’s current account surplus narrowed slightly in February, slipping to USD6.4bn from USD6.9bn in January (December: USD6.9bn; 2014: USD89.2bn). That said, due to a lower oil import bill, the surplus was the largest on record for February and 40% larger than the surplus in February 2014. The narrowing in the current account surplus was driven by a USD1.1bn decline in the primary and secondary income balances, which offset a smaller services deficit and a larger goods surplus. Similar to January, the wider trade surplus on a y/y basis was due to the disproportionately larger drop in oil imports. However, with oil prices rebounding from February, it is likely that oil imports will start to stabilize from March. “With a cumulative surplus of USD13bn for the first two months of the year, we continue to expect the current account surplus to reach USD94.3bn in 2015 (BoK: USD94bn; 2014: USD89.2bn) and USD84.4bn in 2016 (BoK: USD85bn). However, with the marginal benefit of further rate cuts diminishing, the emphasis is likely to be on other growth levers – like fiscal stimulus and also by engineering a weaker KRW to support growth”, says Barclays. With the KRW REER holding above its 20-year average, Barclays expects the government is likely to be hesitant to allow further appreciation in the near term. It is likely to encourage state entities to recycle the current account surplus abroad by stepping up overseas loans and investments.

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