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South Korea's May Current Account Swings to Deficit

South Korea on Friday posted a current account deficit for the third month this year in May, clouding prospects for its already weak currency and its battle to contain inflation.

Korea, Korean Flag
CNBC.com
Korea, Korean Flag

South Korea's current account swung to a $1.01 billion deficit in May after seasonal adjustment from a revised $2.73 billion surplus in April, central bank data showed.

Before seasonal adjustment, South Korea posted a current account deficit of $0.38 billion in May, smaller than a revised $1.58 billion deficit in April, the Bank of Korea data showed.

The surplus from merchandise trade plunged 83 percent to $0.60 billion in May as exports fell 4 percent whereas imports climbed 3 percent, led by the increased costs of importing energy and grains, the data showed.

The figures are seen piling additional downward pressure on the won, which has already lost about 10 percent so far this year against the dollar, at a time when the country is struggling with inflation led by skyrocketing oil prices.

South Korea's young government under President Lee Myung-bak has recently shifted its economic policy goal from lifting economic growth sharply above market expectations to fighting inflation, which is running at a 7-year high.

The consumer price index rose 4.9 percent in May over a year earlier, the highest growth since June 2001, and the finance ministry expects the index to grow by more than 5 percent this month over last year.

For the first five months of the year, South Korea produced a seasonally adjusted current account deficit of $1.89 billion, compared with a $2.74 billion surplus for the same period in 2007, the Bank of Korea said.

The data also showed that South Korea's overseas borrowing fell by a net $4.77 billion in May after a net drop of $0.18 billion in April.

International credit rating agencies have expressed concerns about a jump in South Korea's short-term external debt in recent years, led by banks to fund robust lending and dollar forward deals at home.