South Korea's Industrial Production Exceeded Estimates Amid Export Gains

South Korea’s industrial production grew faster than estimated in July, logging the 13th straight monthly gain as the nation’s exports withstood global risks.

Output gained 15.5 percent from a year earlier, after rising a revised 17.1 percent in June, the statistics office said today in Gwacheon. The median estimate of ten economists surveyed by Bloomberg News was for a 15.2 percent gain. Production advanced 1.1 percent from June.

Exports helped the economy expand 7.6 percent in the first half from a year earlier, the fastest pace in a decade. While signs of slower global growth are clouding the outlook, the Bank of Korea raised its benchmark interest rate by 0.25 percentage point in July to damp price pressures. It signaled a further increase even after holding the rate at 2.25 percent this month.

“The economy still remains strong,” Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul, said before the release. “But the BOK is facing a bigger policy challenge because of rising global uncertainties.” The central bank will keep raising rates as the recovery will likely continue, he said.

The won gained 0.4 percent to close at 1,192.13 per dollar in Seoul yesterday, according to data compiled by Bloomberg. The currency has fallen 2.4 percent this year. The benchmark Kospi stock index advanced 1.8 percent.

Current-Account Surplus

South Korea’s current-account surplus widened to a 16-month high of $5.88 billion in July as overseas shipments, which account for about half the economy, jumped 28.3 percent from a year earlier.

The weaker won buoyed second-quarter earnings at exporters including Samsung Electronics Co. and steelmaker Posco, even as the U.S., Chinese and Japanese economies cooled. The surplus was $17.6 billion for the first seven months of 2010.

A “double-dip recession” or recurrence of the global financial crisis is unlikely, though the pace of recovery in economies such as the U.S. will be “slower than expected,” Bank of Korea Governor Kim Choong Soo said last week.

July’s rate increase, the first since the crisis, “may not be sufficient,” and future moves will depend on domestic and global economic developments, Kim said.

Asian central banks from Taiwan to Thailand and India have boosted borrowing costs this year, judging price pressures outweighed risks including elevated U.S. unemployment and Europe’s sovereign-debt crisis.

Leading Index

A leading index of economic indicators, which forecasts business activity, rose 6.7 percent in July from a year earlier, compared with a revised 7.1 percent gain in June, today’s report showed.

Sales of consumer goods advanced 1.2 percent last month from June and rose 8.6 percent from a year earlier. Investment in factories increased 33.5 percent from a year earlier.

Manufacturers’ confidence in prospects for September rebounded on the outlook for overseas demand and local holiday shopping, according to a separate report.

Consumer price inflation probably remained at 2.6 percent in August, the same level as July, while exports gained 34.2 percent from a year earlier, separate Bloomberg News surveys showed. The data are due to be released this week along with revised second-quarter gross domestic product figures.

Economic growth will accelerate to 5.9 percent this year, more than an April projection of 5.2 percent, and cool to 4.5 percent in 2011, the Bank of Korea has said. Kim and the policy board next meet to decide on the benchmark rate on Sept. 9.

-- With assistance from Michael Munoz in Hong Kong. Editors: Sunil Jagtiani, Stephanie Phang

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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