South Korea Factory Output Drops as Europe Contagion Hits Exports: Economy
South Korea’s industrial output fell, India’s economy grew the least in more than two years and Thailand cut interest rates as an Asian slowdown limits the region’s ability to support a faltering world recovery.
Korea’s production fell 0.7 percent in October from September, Statistics Korea said today. India’s gross domestic product rose 6.9 percent in the three months through September, the government said. Thailand’s benchmark rate fell to 3.25 percent from 3.5 percent.
Europe’s sovereign-debt crisis is capping demand for shipments from economies in the region that has been leading the global recovery. In China, stocks tumbled on concern a slowdown will deepen after central bank adviser Xia Bin said a government pledge to fine-tune policies doesn’t mean credit controls will be loosened or property curbs reversed.
“Contagion from Europe is increasingly obvious, impacting not only asset prices and the financial sector but also the real economy in Asia,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “We are seeing a sharp slowdown in export growth, which is translating to weaker industrial output and overall economic activity.”
Asian stocks fell after Standard & Poor’s cut the credit ratings of some of the world’s biggest lenders. The MSCI Asia Pacific Index lost 0.5 percent as of 4 p.m. in Tokyo. The Shanghai Composite Index slumped 3.3 percent.
In South Korea, Samsung Electronics Co. and LG Electronics Inc. have reported profit declines as Europe’s leaders struggle to ensure the survival of the euro amid surging borrowing costs for Italy and Spain.
Indian “growth prospects do not seem sunny for the next year,” said Rohini Malkani, a Mumbai-based economist at Citigroup Inc. “High interest rates, uncertainty about reforms, allegations of corruption and recessionary global conditions are casting a deep shadow over India’s growth story.”
In other economic reports due today, European inflation may hold at a three-year high of 3 percent, according to a median forecast ahead of a preliminary report due today. Also pending are measures of unemployment in Germany and Italy.
In Japan, a report showed manufacturers plan to cut output this month after a 2.4 percent gain in October from September.
“There’s no doubt that the pace of Japan’s economic growth will keep losing steam because exports are already on a downward trend,” Azusa Kato, an economist at BNP Paribas in Tokyo, said before the report. “Demand from earthquake reconstruction will probably help the economy avert a contraction next fiscal year, but the pace of expansion won’t be impressive at all because of the slowdown overseas.”
For the next three or four months, analysts in Asia may struggle to distinguish between weakness in demand and the effects of supply-chain disruptions caused by floods in Thailand, said Richard Jerram, Singapore-based chief economist at Bank of Singapore Ltd.
South Korea exports, equivalent to half of the economy, rose at the slowest pace in two years last month, gaining 8 percent. Overseas shipments probably rose 10.4 percent in November from a year earlier, according to a Bloomberg survey. The data will be released tomorrow.
The nation is “particularly vulnerable to a sharp deterioration of the world economy,” the Organization for Economic Cooperation and Development said in a report this week.
The OECD cut its 2012 growth forecast for its 34 member countries to 1.6 percent from 2.8 percent predicted in May. The Paris-based organization projected South Korea’s expansion at 3.7 percent this year and 3.8 percent in 2012.
Euro-area finance ministers yesterday approved enhancements to their bailout fund while backing off from setting a target for its firepower and seeking a greater role for the International Monetary Fund in fighting the debt crisis.
The finance chiefs of the 17 nations using the euro agreed to work on boosting the resources of the IMF so it can “cooperate more closely” with the European Financial Stability Facility, Luxembourg’s Jean-Claude Juncker told reporters in Brussels after leading the meeting.
‘Countries in Need’
“It’s very important that the IMF globally will increase its resources either by raising its capital or by bilateral loans so that it can lend more money to euro-zone countries in need,” Dutch Finance Minister Jan Kees de Jager said in an interview with Bloomberg Television after the meeting. “If we open the IMF effort, that will be sufficient together with the leverage options in the EFSF.”
After a series of stop-gap accords failed to protect Italy and Spain from surging bond yields, the euro-area ministers are under growing pressure from U.S. leaders and international financial markets to find ways to boost the EFSF’s effectiveness. They agreed to a plan to guarantee up to 30 percent of new bond issues from troubled governments and to develop investment vehicles that would boost the facility’s ability to intervene in primary and secondary bond markets.
European heads of government meet on Dec. 9 in Brussels, in a summit likely to be dominated by the debt crisis that began in Greece two years ago, spread to Ireland and Portugal, before driving up Italian and Spanish bond yields over the summer, and now is hurting even Germany’s ability to sell debt and threatening France’s top debt rating.
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