South Korea's July factory output rebounds, focus turns to trade

[SEOUL] South Korea's industrial output unexpectedly grew in July but the improvement was mainly due to temporary factors, spurring investors to hone in on trade data out on Thursday for further clues on the health of the economy.

In monthly terms, industrial output rose 1.4 per cent in July on a seasonally adjusted basis as production of electronic components and cars boosted activity, data showed on Wednesday.

The median forecast in a Reuters survey of analysts was for output to decline 0.6 per cent from June. June's reading was revised down to minus 0.4 per cent from minus 0.2 per cent estimated earlier.

"We think the bounces in confidence and in IP growth are noise rather than signal and that IP growth remains essentially flat and services are growing around 3 per cent," said Tim Condon, economist at ING. "If IP and services remain at their July level in the remainder of the quarter, we estimate third-quarter (economic) growth at 3.0 per cent."

Asia's fourth-largest economy expanded by 3.2 per cent in second quarter in annual terms.

Improving exports, albeit at a slow pace, also aided production in July, highlighting the importance of shipments to Asia's fourth-largest economy.

The same Reuters poll has projected a 0.6 per cent rise for August exports, which would be the first gain after 19 months of falls.

A boost in liquid crystal display exports thanks to the Olympic Games helped activity, a finance ministry statement said. Electronic parts production rose 6.4 per cent on-month in July while car output gained 3.7 per cent over the period.

On an annual basis, industrial output gained 1.6 per cent, much more than expected and improving from a revised 0.8 per cent increase from June.

The average factory operation rate in July was 73.8 per cent, a 4-month high.

Meanwhile, service sector output declined 0.7 per cent from a month earlier, slipping from a 1.0 per cent gain in June and breaking a five-month rising run.

It was the first and worst fall since a 1.2 per cent drop in January this year, but the finance ministry official said the decline was due to base effects and services were expected to keep improving.

A gauge of South Korean manufacturers' sentiment over future business conditions rose to its highest in a year-and-a-half for September, a central bank survey showed earlier on Wednesday, as exports prospects brightened from the previous month.

REUTERS