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(News Focus) Rebound in industrial output draws mixed analysis

All News 15:08 January 29, 2016

By Kim Boram

SEJONG, Jan. 29 (Yonhap) -- As South Korea's industrial output rebounded in December, snapping two straight months of minus growth, officials from the government and central bank gave varying predictions on whether the country will be able to maintain this momentum in the coming months.

Industrial output rose 1.3 percent in December from a month earlier, a turnaround from a 2.1 percent drop in November and a 1.1 percent fall in October, according to the data compiled by Statistics Korea. Compared with a year earlier, however, industrial production fell 1.9 percent.

The latest productivity data showed output of the chemical and refinery sectors rose 4.7 percent and 7.3 percent on-month, respectively, which was offset to some extent by a 13.8 percent decline posted by the communications equipment industry.

Asia's fourth-largest economy grew just 2.6 percent on-year in 2015, down from 3.3 percent growth achieved in 2014.

"Industrial output improved in December from a month earlier as inventory levels fell in October and November," said Choi Jung-su, director of the short-term industrial statistics division. "But overall production still remained sluggish due to weak global demand and lackluster exports."

The statistical office, however, said other aspects of the economy looked better as domestic consumption and investment continued to expand.

Domestic spending jumped 3.5 percent on-year on the back of stellar sales of cars and other durable goods but edged down 0.1 percent on-month in December due to a drop in sales of clothing and food, according to the report.

Investment gained 6.1 percent on-month in December, rebounding from a 5.4 percent on-month drop in November.

For the whole of 2015, South Korea's industrial output backtracked 0.6 percent last year from a year earlier, as the country was hit hard by the slowdown in the global economy and trade.

Production of electronics, a key export item, retreated 6.6 percent on-year in 2015, while shipmakers and mobile phone makers dropped 11.2 percent and 16 percent, respectively.

The chip industry saw its production jump 20 percent last year to offset the sharp drop in other exporting areas, with the petroleum sector gaining 5.9 percent.

Assessing the overall picture, the finance ministry said domestic demand continued to be in a good form in December, while production and investment have picked up steam.

"Retail sales seemed to slow down in December compared with a record surge in October," the ministry said in a release. "But we can see that it is on the track to recovery."

This rosy view, however, was not fully endorsed by the central bank, which took a conservative stance on December's numbers, saying that seasonal one-off factors largely affected the rise in industrial output and domestic consumption.

"Industrial output is partly inflated because of a low baseline in November, when the country's exports did not do very well," a Bank of Korea (BOK) official said.

"By the time the excise tax program expired in December, car sales took a favorable turn as people wanted to take advantage of a closing window and builders made headway on planned projects in December."

He then said instead of making hasty predictions, the country needs to wait a few months till the end of March so as to gauge full developments that take place in the first quarter.

The finance ministry is partly in line with the BOK, as it has stressed that the first quarter is critical for setting the direction for the rest of the year.

It said it will frontload fiscal spending in the first three months to keep alive the ongoing momentum in private consumption and host a second round of massive discount events in February.

Statistics Korea also said it is necessary to revive exports in 2016 as the rise in domestic consumption could possibly slow down in the first half of the year.

"South Korea is an export-driven economy. Exports affect industrial output and consumption, as robust production increases household income," the agency pointed out.

"We must overcome the external risk to help fuel outbound shipment growth that can bring the Korean economy back on course."


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