South Korea's Factory Output Increases for Ninth Month on Global Recovery

South Korea’s industrial production grew for a ninth straight month in March as the global economic recovery fuels overseas demand for cars and electronics.

Output jumped 22.1 percent from a year earlier, after rising a revised 18.8 percent in February, the statistics office said today in Gwacheon. That was more than the median estimate for a 19.8 percent gain in a Bloomberg News survey of 14 economists. Production increased 1.6 percent from February.

Asia’s fourth-largest economy expanded a quicker-than- expected 1.8 percent in the first quarter as exports surged and consumer spending improved. Faster growth may increase pressure on the Bank of Korea to raise interest rates, which have been kept at a record-low 2 percent for 14 consecutive months.

“The output growth is quite impressive,” said Park Sang Hyun, an economist at HI Investment & Securities Co. in Seoul. “Inventories and corporate investments have begun to rise on reviving global demand. The economy will likely grow more than 5 percent this year.”

The won headed toward a 19-month high as the better-than- expected production figures spurred investors to invest in local funds. The currency rose 0.5 percent to 1108.75 against the dollar as of 9:07 a.m. in Seoul. The benchmark Kospi stock index advanced 1 percent.

President Lee Myung Bak, who predicts the economy will grow by more than 5 percent in 2010, has put jobs at the top of the political agenda as he prepares for local elections in June. The central bank forecasts gross domestic product will increase 5.2 percent this year, the most since 2006.

More Confident

Manufacturers’ confidence for May climbed to the highest level in more than seven years as the economy strengthens, the central bank said yesterday. The jobless rate fell to 3.8 percent in March from 4.4 percent in February, the biggest drop in more than 10 years. Consumer prices rose 2.3 percent from a year earlier in March, the slowest pace in five months.

Bank of Korea Governor Kim Choong Soo, who took office this month, faces criticism that his government background would prompt him to delay rate increases. Kim, a former top economic aide to President Lee, and his seven-member policy board kept the benchmark rate unchanged at their first meeting on April 9.

The new governor said last week he’s undecided on whether to press the government to refrain from commenting on the central bank’s monetary policy direction.

‘Too Soon’

Government officials have repeatedly said that it’s “too soon” to raise borrowing costs. The governor has also said the current benchmark rate of 2 percent is “appropriate.”

“Korea is entering a boom cycle and should act quickly to prevent inflation and bubbles in the economy,” Kwon Young Sun, an economist at Nomura International Ltd. in Hong Kong, said before the report. A rate rise “seems unlikely anytime soon as the government is opposing it and prices are muted.”

Kwon said the problem with South Korean monetary policy is that the market is paying more attention to the government’s stance than the central bank’s position.

Finance Minister Yoon Jeung Hyun said this week that the economy may grow faster than 5 percent but that the government will keep its expansionary policy stance “for the time being,” given lingering uncertainties such as volatile global financial markets and weak job market conditions.

South Korea needs to rein in excessive expansion of household debt and improve employment conditions to anchor the financial system’s stability, the central bank said yesterday in its bi-annual financial market review.

A leading index of economic indicators, which forecasts business activity, rose 9.6 percent in March from a year earlier, today’s report showed.

Central bank policymakers will meet on May 12 to review borrowing costs.

To contact the reporters on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net; William Sim in Seoul at wsim2@bloomberg.net

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