South Korean industrial output misses mark with 0.1 per cent rise

Factory and mining index rises by only 0.1pc, but exports are expected to bounce back

PUBLISHED : Saturday, 31 May, 2014, 12:59am
UPDATED : Saturday, 31 May, 2014, 12:59am

South Korea’s factory output grew at a much slower pace than expected  last month, although businesses continued to invest in plant and machinery, suggesting Asia’s fourth-largest economy can weather the recent loss of momentum thanks to improving exports.

Analysts and government officials blamed one-off factors for some of the weakness seen in data released  yesterday, including last month’s ferry disaster, which depressed domestic tourism and retail spending.

The industrial output index, which covers the manufacturing and mining sectors, rose a seasonally adjusted 0.1 per cent in April from the previous month, following a revised 0.9 per cent rise in March, Statistics Korea data showed. It was much weaker than a median 0.6 per cent gain tipped in a Reuters survey. 

Still, the economic picture is not all gloomy.

“We believed that the one-off factors like the ferry sinking would be offset by robust exports in April, but things seem to be moving slower than anticipated,” said David Kim, an economist at Daishin Securities in Seoul.

“However, we see an improving trend going forward as exports grow,” Kim said.

Analysts also note that part of the anticipated slowdown in May exports reflects fewer working days this year than last year.

Still, with domestic consumption continuing to remain weak, highlighted by the service sector output falling a seasonally adjusted 1 per cent in April from March, exports will need to do much of the heavy lifting to support growth.

Yesterday’s data comes after  news that the US economy contracted for the first time in three years in the first quarter as it buckled under a severe winter.

But there are signs it has rebounded and economists say it could grow as much as 4 per cent in the current quarter.

A rebound in the US, South Korea’s second-biggest export market, will be crucial to cementing a recovery at home,  given a slowdown in China’s economy.

“[The]  figures don’t look strong but as a whole indicate the economy is softening instead of slipping into a sharp downturn,” said Park Sang-hyun, the chief economist at HI Investment and Securities, yesterday.

The Bank of Korea expects the economy to grow an annual   4 per cent this year, from   3 per cent last year. The market’s consensus view also sees the bank raising  rates,  possibly as soon as the third quarter of this year.

A central bank survey found  business sentiment among South Korean manufacturing companies was at its worst in 10 months, with their business outlook index for June falling to a seasonally adjusted 77 from 79 for May.

Government officials and analysts said last month’s sinking of a ferry darkened the public’s mood and contributed to a freeze in spending in leisure travel and hotel bookings.