South Korea’s Industrial Production Drops More Than Expected

South Korea’s factory output fell more than expected in August from a month earlier as a strike by auto workers and fewer work days due to the holiday season reduced production.

Key Points

  • The gauge fell 2.4 percent from July, compared with the median forecast in a Bloomberg survey of economists for a 0.6 percent drop.
  • Industrial output rose 2.3 percent from a year earlier, the statistics office said, compared with a projected 1.6 percent gain.

Big Picture 

South Korea’s economy is yet to show clear signs of recovery, despite interest-rate cuts to a record-low of 1.25 percent and the government’s supplementary budget. Challenges facing the economy include the anti-corruption law, which is projected to damp spending, and the progress in corporate restructuring, which has hurt employment in regions where shipbuilders and shipping companies are located. A strike by auto workers looms as an ongoing problem for industrial production and exports.

Economists Takeaways

  • Factors including the significant drop in automobile production in August weighed on industrial production performance, Park Chong-hoon, the head of Korea economic research for Standard Chartered Bank in Seoul, wrote in a report before the release.
  • On the year-on-year basis, the production increased due to two more working days than 2015, and as exports also increased for the first time in 20 months, Park Ok-hee, a Seoul-based analyst for IBK Securities Co., said before the release.

The Details

  • The Finance ministry said in a statement that North Korea’s escalating provocations and ongoing corporate restructuring in South Korea pose uncertainties for the economy, while any prolonging of the auto strike will limit any recovery of the economy
  • Inventories fell 4.8 percent on year at the end of August, compared with a 2.5 percent fall in the previous month, while investment on facilities increased 14 percent on month in August, reversing a 11.7 percent contraction in July
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