South Korea May factory output growth fastest in 3 months, beats forecasts

[SEOUL] South Korea's industrial output in May rose at its fastest pace in three months and far outperformed expectations as car and semiconductor production boosted activity, but growth faces risks from weak investment and stubbornly poor exports.

Industrial output in Asia's fourth-largest economy rose a seasonally adjusted 2.5 per cent in May from April, government data showed on Thursday, beating a 0.3 per cent rise projected by a Reuters survey.

The data follows an upwardly revised 1.2 per cent fall in April output and marked the fastest growth since February this year.

"It's surprising semiconductors did so well. If we want to see factory growth continuing it needs to be backed by investment, but I see capex was flat," said Kim Doo-Un, economist at Hana Financial Investment.

On a seasonally adjusted basis, semiconductor production rose 9.9 per cent on-month in May while auto manufacturing was up 3.7 per cent over the same period.

Capital investment showed no growth in May in monthly terms after posting a revised 3.1 per cent rise in April.

On a year-on-year basis, industrial output jumped 4.3 per cent in May after a revised 2.6 per cent drop in April, also outperforming a 0.4 per cent gain forecast in the same Reuters survey.

A finance ministry official told Reuters after the data was published that forecasting future activity would be difficult because there were many temporary factors behind May's improvement.

The loss of momentum caused by weak exports prompted the central bank to cut interest rates for the first time this year to 1.25 per cent, and the government is to provide extra fiscal stimulus worth around 10 trillion won (S$11.62 billion) via a supplementary budget.

Unless the Bank of Korea lowers interest rates again in July to push harder for growth, factory activity is expected to stay volatile, said Mr Kim. Analysts are currently divided between no change for the rest of the year and another interest rate cut.

Exports have been falling since January last year, with factory activity changeable but on the whole subdued. June export data is due on Friday.

Thursday's data showed that service-sector output rose by a seasonally adjusted 0.1 per cent in May on a monthly basis, compared to a revised 0.5 per cent gain in April.

The sector gained on finance and insurance-related services and social welfare services, the data showed.

REUTERS