Japan and South Korea hit by weak world demand

Countries' industrial output below expectations in March amid signs of a cooling global economy

PUBLISHED : Wednesday, 01 May, 2013, 12:00am
UPDATED : Wednesday, 01 May, 2013, 3:46am

Japanese and South Korean industrial output was less than estimates in March as weakness in global demand limits recoveries in Asian economies.

In Japan, production climbed 0.2 per cent from February, the trade ministry said yesterday. That was less than the median 0.4 per cent forecast in a survey of 27 economists.

Korea's output fell 2.6 per cent, a separate report showed.

Yesterday's data adds to signs of a cooling global economy after United States gross domestic product rose less than forecast in the first quarter and China reported an unexpected slowdown.

While Japan is already rolling out unprecedented monetary easing, the latest numbers may fuel calls for Korea's central bank to cut interest rates.

"Overseas demand gathered momentum in the past few months, but the pace of growth is moderating a bit now," said Junko Nishioka, the chief economist at Royal Bank of Scotland in Tokyo and a former Bank of Japan official. "Shipments of cars to the US are slowing."

The MSCI Asia Pacific Index climbed to the highest level since June 2008 amid speculation that central banks will extend stimulus measures. The benchmark was up 0.7 per cent yesterday morning in Tokyo.

In the US, the Federal Reserve will consider renewing its commitment to bond buying at a two-day meeting that started yesterday, while most economists surveyed predicted that the European Central Bank would cut interest rates this week.

In Korea, recovery momentum is weakening as the euro-area economies struggle and the US and Chinese economies expand at a slower-than-forecast pace, according to a finance ministry statement yesterday.

Reduced working hours at Hyundai Motor, the nation's biggest carmaker, dragged down output last month.

Prolonged yen weakness was a risk for exports, the ministry said.

"The Bank of Korea may need to adjust its rosy assessment of the second half," said Jun Min-kyoo, an economist at Korea Investment & Securities.

"We need an interest-rate cut in May."

While Japan's output was less than forecast, Nishioka said the country's recovery was being sustained, with the unemployment rate in March falling to 4.1 per cent, the lowest level since 2008, according to a separate report yesterday.

The government raised its assessment of output to say that "production is moving to a gradual recovery".

The Bank of Japan has pledged unprecedented monetary easing as part of Prime Minister Shinzo Abe's campaign to bring to an end 15 years of deflation.

A slide in the yen is boosting the outlook for Japanese exporters in coming months while also adding to challenges for their rivals in other countries in Asia.

Meanwhile, the US was to release yesterday consumer confidence data, while Germany was to provide numbers for retail sales and unemployment.

In Japan, "manufacturing will continue to pick up in the second quarter, but at a slower pace than in the first quarter," said Masamichi Adachi, a senior economist at JP Morgan Chase.

"However, momentum should gain each quarter from the second half of the year as public spending kicks in, the weaker yen supports exports, capital spending increases, and a rise in summer bonuses leads to higher consumption."