Recent Fluctuations in Current Account : Factors and Implications

■ The analysis results show that the recent decline in the current account balance was driven by a sustained increase in expenditure despite a decline in income due to deteriorating external conditions.- The decline in the current account in 2H 2022 was largely due to a decrease in income caused by the decline in the terms of trade, with some contribution from domestic demand.- In 2023, the current account surplus is expected to narrow to 1.0% of GDP as domestic demand maintains a relatively high increase amid the persistent global economic slowdown.■ Given the current status of external soundness of the Korean economy, a sharp contraction in the foreign exchange market due to a decline in the current account is unlikely to occur.- Currently, Korea’s foreign exchange reserves and net foreign assets are significantly different in size from those of countries that have experienced foreign exchange crises in the past, and even if the current account decline persists for one or two years, the likelihood of a foreign exchange crisis due to a decline in net foreign assets appears to be low.■ Therefore, it is advised that the macroeconomic policy stance should not be sensitive to short-term fluctuations in the current account.- It is important to note that the narrowing of the recent trade deficit may not guarantee macroeconomic stability.- Consequently, when assessing the current situation and setting a policy framework, it is necessary to pay close attention to indicators closely related to macroeconomic conditions, such as prices, economic activity, and employment, rather than short-term fluctuations in the current account