Semiconductor boom drives 'twin surge' in exports and dividends… Record current account surplus for two consecutive months

The semiconductor boom is lifting not only the trade balance but also dividend income earned overseas. As performance improved at overseas subsidiaries of domestic semiconductor companies, dividends remitted to headquarters increased, pushing July's current account balance to the second-largest surplus on record despite seasonal downward pressures.

According to data from the Bank of Korea released on the 4th, semiconductor exports reached $41.17 billion in July based on customs clearance figures, a sharp 176.3% increase compared to the same month last year. Semiconductors accounted for 41.6% of total exports, which stood at $98.96 billion. Exports of computer peripherals and SSDs surged by 344.5%, driving overall IT product exports up by 140.6%.

July is typically a period when exports and the merchandise trade surplus decline compared to June. This reflects a base effect, as export companies concentrate shipments at the end of the second quarter in June to manage first-half performance.

Nevertheless, merchandise exports reached $100.45 billion in July, exceeding $100 billion for two consecutive months following June. The merchandise trade surplus stood at $40.43 billion, marking the second-largest on record.

A Bank of Korea official stated, "Typically, July sees a decline in exports and the merchandise trade balance due to base effects from companies concentrating shipments in June to manage first-half performance. However, driven by the semiconductor boom, merchandise exports exceeded $100 billion for two consecutive months."

The semiconductor boom also reflected in the primary income balance. As operating profits of overseas sales subsidiaries of semiconductor companies expanded, direct investment dividend income paid from foreign affiliates to domestic headquarters increased.

Consequently, the dividend income surplus reached $3.83 billion in July, an increase of $1.27 billion from the previous month's $2.56 billion. The primary income balance surplus also widened from $3.27 billion to $4.35 billion during the same period.

A Bank of Korea official explained, "This increase in dividend income was driven by higher direct investment-related dividend receipts. As operating profits at overseas sales subsidiaries of semiconductor companies improved, dividends flowing into domestic headquarters increased."

With both merchandise exports and dividend income rising simultaneously, the current account balance surpluses for June and July reached $49.73 billion and $42.08 billion respectively, ranking first and second on record. The combined surplus over the two months totaled $91.81 billion. Year-to-date cumulative current account balance surplus from January to July stood at $233.09 billion, achieving 51.8% of the Bank of Korea's annual forecast of $450 billion.

To meet the annual forecast over the remaining five months, an average monthly surplus of approximately $43.4 billion is required. Although this level exceeds July's surplus size, the Bank of Korea expects the current trajectory to largely align with its forecast, citing favorable export trends in August. The semiconductor market remains the key variable moving forward.

The recent decline in the won-dollar exchange rate is also cited as a factor. Typically, an appreciation of the won raises dollar-denominated export prices, potentially weakening price competitiveness. However, the Bank of Korea judges that current semiconductor exports are more significantly influenced by structural demand and supply conditions driven by expanded AI investment than by exchange rate fluctuations.

A Bank of Korea official noted, "While a declining exchange rate theoretically exerts downward pressure on the current account balance, recent merchandise export growth has been led by semiconductors, which are affected by structural demand and supply dynamics tied to AI investment. Thus, the impact of exchange rates is expected to be limited."

Rising energy prices due to geopolitical instability in the Middle East also pose downward pressure on the current account balance. However, with diversification of import sources underway and the Middle East's share of total exports remaining relatively small, analysts suggest that semiconductor market trends are more likely to determine the current account balance than Middle East political developments at this stage.