Seoul plays down factory output fall

SEJONG, SOUTH KOREA: South Korea’s biggest fall in factory output for six years was a “temporary” setback, the government said after releasing the gloomy January data yesterday, and a survey of factories in February showed activity holding steady at a 20-month high.

Official data showed industrial output in January fell by a seasonally adjusted 3.7% on-month, the worst since December 2008, while December’s reading was revised up to a 3.4% rise from a 3.0% gain reported earlier.

Analysts polled by Reuters had expected factory output to have fallen by a seasonally adjusted 0.1% in January from December.

The Finance Ministry swiftly held an unscheduled briefing and said the January data was largely influenced by temporary and seasonal factors such as a payback after advance shipments of automobiles in December to meet year-end targets.

“Some economic indicators such as the January industrial activity and February foreign trade showed a correctional pattern but temporary factors and price declines were mainly to blame,” Lee Chan-woo, director-general of the ministry’s economic policy bureau told the briefing.

In annual terms, industrial production rose 1.8% in January after a revised 1.1% annual gain.

“The ministry has been trying to boost sentiment as it is worried about fast growing household debt and confident about economic growth accelerating this year,” said Yoon Yeo-sam, a fixed-income analyst at Daewoo Securities.

In fact, the HSBC/Markit survey of purchasing managers showed yesterday that South Korea’s manufacturing activity rose for a second consecutive month in February with the pace of growth holding steady at a 20-month high.

South Korea’s Finance Ministry and central bank have been talking up the economy since late last year, leading analysts to conclude that they intended to keep interest rates steady for a while longer to dampen rising household debt.

Analysts including Daewoo’s Yoon said the Bank of Korea would likely keep the policy interest rate steady at a record-matching low of 2.0% at its March 12 meeting, but would still need to cut it as soon as April if the economy cools down.