Factory Output in South Korea Drops Further Amid Weak Exports

  • April output falls 2.8% y/y, more than 0.6% decline month ago
  • Inventory-to-shipment ratio of 124.2% indicates tough times

South Korea’s industrial production fell more than economists expected as weak exports and corporate restructuring of shipbuilders continue to hurt demand and business sentiment.

Factory output dropped 2.8 percent from a year earlier in April, Statistics Korea said Tuesday, compared with a 1.3 percent decline estimated by economists in a Bloomberg survey. Production fell 1.3 percent from a month earlier.

"The negative factory output data trend shows that the foundations of growth are weak," said Suh Dae Il, an economist at Mirae Asset Daewoo Co. "The government’s push to restructure shipbuilders and shipping companies will further hurt domestic demand."

Suh forecasts that the Bank of Korea will cut the benchmark interest rate by 25 basis points in July, as data continues to contradict the BOK’s view that domestic demand will support growth.

The inventory-to-shipment ratio eased slightly to 124.2 percent in April, remaining at a high level after touching 128.3 percent in January, the highest since 2008. The high ratio is a sign of weak demand as manufacturers stockpile unsold goods at their warehouses.

Production of electronic components fell 12.7 percent from a year ago, while output of cars and machinery dropped 8.7 percent and 9.5 percent, respectively.

South Korea will release its May readings for inflation and trade on Wednesday.

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