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The deficit was US$53.7 million in March, according to the Bank of Korea on Wednesday. The shortfall narrowed sharply from $2.35 billion in the previous month on strong exports, but analysts forecast the deficit to widen in April because of rising energy and raw materials bills.
The country's current account balance swung to a shortfall in December, with the January deficit hitting an 11-year high to a revised $2.75 billion.
Its accumulated deficit amounted to $5.16 billion in the first three months of the year, marking a sharp rise from $1.66 billion in the same period last year. Current account, the broadest measure of trade, service and investment flows into and out of the country, signals South Korea's economic health is heavily based on exports, economists say.
The central bank attributed decreased shortfall in March to robust exports, the country's main engine, making up about 40 percent of the economy. As export growth picked up, the trade balance, the broadest measure of the nation's exports and imports, swung into the black in March at $531.4 million, compared with a $599 million deficit in February.
Customs-cleared exports grew 18.6 percent year-on-year last month on the back of brisk shipments of digital consumer goods and petrochemical products.
Imports expanded 25.8 percent year-on-year due to high energy import bills, posing a burden to South Korea, which imports 97 percent of its energy needs from overseas. The price of Dubai crude, South Korea's benchmark, jumped 64.4 percent in March from a year earlier.
The deficit in the service account, which includes the country's spending on overseas trips, narrowed to $679.5 million in March, from a $2.25 billion deficit in the previous month.
The income account balance, which tracks wages for foreign workers and dividends, posted a surplus of $219.4 million in March, down from $701 million a month earlier.
The capital account, which tracks cross-border investments, recorded a net inflow of $388 million in March, a turnaround from a net outflow of a revised $401.3 million a month earlier.
The central bank and economic think tanks say the country's current account is unlikely to swing back into the black for the time being, citing surging energy import costs.
Yang Jae-ryong, head of the central bank's balance of payments statistics team, said the narrowed deficit in March was largely attributable to the receipt of dividends by local credit card issuers after Visa Inc.'s share listing.
Visa Inc., the world's largest credit-card network, gave $1.17 billion in proceeds from its stock listing in New York to South Korean card providers, serving as a one-off boost for the income account.
"Without the Visa proceeds and other seasonal factors, the current account deficit would have marked $2.2-2.3 billion in March," Yang said. South Korea is expected to incur a current account deficit for the fifth straight month in April when foreign investors repatriate their dividend income, he said.
"The trade balance could swing back into the black as international crude prices are still running high," said Lee Kun-tae, an economist at the private LG Economic Research Institute.
Trade and Commerce Minister Lee Youn-ho said he may cut his forecast of a trade surplus of $13 billion this year, citing strong oil prices. "We could fail to achieve the forecast of trade surplus this year if oil and raw material prices remain high," he said.
Economists say the current account balance is expected to swing to a deficit this year for the first time since the 1997 Asian financial crisis. They say the deficit would go as high as $10 billion. In 2007, South Korea had a $5.95 billion surplus.
The bleak current account outlook comes as South Korea's economy grew at its slowest pace in more than three years in the first quarter as consumer spending and facility investment dipped. The economy expanded 0.7 percent from the previous quarter, when it advanced 1.6 percent.
President Lee Myung-bak, elected with a pledge to push up economic growth to 7 percent annually, has revised this year's growth target down to 6 percent.
But local think tanks remain skeptical about the revised target. The Samsung Economic Research Institute, the nation's leading think tank, downgraded its growth projection for this year by 0.3 percentage point to 4.7 percent.