South Korea May factory output barely gains, misses forecasts by large margin

[SEOUL] South Korea's industrial output barely gained in May after posting unexpected declines in April even as exports have been surging for more than half a year, which may undermine the central bank's view that growth this year will beat its 2.6 per cent forecast.

Industrial output gained 0.2 per cent in May from April on a seasonally adjusted basis, data from Statistics Korea showed on Friday, missing the 1.5 per cent rise expected by economists by a large margin.

In annual terms, factory output in May rose 0.1 per cent after a revised 1.8 per cent increase in the previous month.

"Exports are soaring, but sluggish domestic demand for consumer goods is dragging the overall factory output data,"said Lee Sang Jae, an economist at Eugene Investment and Securities.

"Sentiment is improving, and more people expect recovery to strengthen in the coming months, but consumer spending is still weak. The lower average factory operation rate shows the recovery is weak,"Mr Lee said.

He added that while demand for consumer products including cars and home appliances seemed to be tepid, the IT sector was boosting exports.

With factory output and exports moving hand-in-hand of late, analysts expected production to grow along with export shipments which have risen for seven straight months through May this year.

The data adds an element of uncertainty for the Bank of Korea which plans in July to upgrade the economic growth outlook for this year from the current 2.6 per cent.

The average factory operation rate fell slightly to 71.4 per cent in May from 71.9 per cent in April, in a sign of weakening demand.

Production of communication devices dropped 18.2 per cent from a month earlier, while output of cars declined 1.9 per cent, the report showed.

Output of semiconductors and electronic components, however, surged 9.1 per cent and 4.7 per cent, indicating divergent growth among sectors.

In another sign of patchy domestic demand, service sector output declined for the first time in seven months, falling 0.3 per cent from April in seasonally adjusted terms.

But despite May's falls in output, consumer sentiment hit a six and a half-year high in June.

"Many of sub-indices in Friday's report declined, but it's difficult to interpret this as the coming of a downturn in the economy, as there was some base effect as well," an official from the statistics agency said.

REUTERS