Under the Hood of Korea Production Gain, Doubts on Future Path

  • Industrial output better than forecast while investment slides
  • Government sees improvement driven by temporary factors

Here’s a key takeaway from data Wednesday showing South Korea’s industrial production unexpectedly rose in July: Gains largely stemmed from temporary factors including more production of television panels in anticipation of Olympics-fueled TV sales, with analysts saying the improvement likely won’t be sustained.

  • Industrial production rose 1.4 percent from the previous month (with a survey of analysts forecasting a 0.6 percent drop), and increased 1.6 percent from a year earlier (vs. a 0.4 percent gain forecast).
  • Auto production rose from the previous month owing to the base-effect of a decline in June anticipating the end of a consumption-tax cut, Kim Kwang Sup, an official at the statistics office, said in a briefing. “Electric parts production increased on more LCD panel production with the Olympics,” he said. “Industrial output data is showing ups and downs, but with the export slump persisting, overall it’s not in that good shape.”
  • Retail sales fell 2.6 percent from the previous month and increased 4.3 percent from a year earlier.
  • Facilities investment plunged 11.6 percent from the previous month and slid 12.3 percent from a year earlier; a decline in companies’ purchases of automobiles affected the data, Kim said.
  • The Finance ministry said in a separate statement that South Korea’s economic recovery is likely to be limited in August because of a delay in parliamentary approval of a supplementary budget proposal and a strike of auto workers.

What an economist said after the report:

“Industrial output was better than expected, but I don’t think it can be translated to signs of an economic recovery,” said Lee Sang Jae, an economist for Eugene Investment & Securities Co. in Seoul. “Corporate investment, exports and consumption have to be supported for industrial production growth to be sustained, but improvement in those factors doesn’t look likely in the near term.”