SEOUL: South Korea's August factory output marked its worst fall since the 2008 global financial crisis, as strikes at automakers disrupted output, although markets showed little reaction as investors look ahead to trade and inflation data due on Wednesday.
The industrial output index dropped by a seasonally adjusted 3.8 percent in August from July, Statistics Korea data showed on Tuesday, the biggest fall since December 2008 and far below the most pessimistic forecast in a Reuters survey.
July's reading was revised to a 1.5 percent gain from a 1.1 percent rise reported earlier.
A finance ministry official attributed the fall mainly to strikes by unionised workers at auto makers including Hyundai Motor Co over pay negotiations and said the country remained on track for a modest economic recovery.
South Korea's economy has been hobbled since a ferry sinking disaster in mid-April dented consumer sentiment, spurring the government to launch a range of new policy measures to boost demand.
"This weakness doesn't seem like it will continue and is likely to be temporary as the auto sector was mainly to blame," said Kim Yu-kyum, an economist at LIG Investment & Securities in Seoul.
"It doesn't mean we're not concerned but it's difficult to say everything's crumbling down because of one month's data." Strikes at the nation's leading automaker are fairly frequent and output as well as exports have rebounded following previous labour disruptions as factories made up lost production.
South Korea will publish export and import performance estimates on Wednesday.
The estimates are something of a barometer for global commerce because South Korea is the first of the world's trade powerhouses to report its monthly numbers.
A Reuters survey showed September exports are expected to show a rise of 8.2 percent on an annual basis and imports are seen gaining 6.0 percent. Should exports reach the expected level, it will be the best performance for shipments from South Korea in 20 months.
Shipments in September are expected to have rebounded from an annual 0.2 percent fall in August on an additional working day from a year earlier and improving demand from advanced economies such as the United States.
Industrial output tends to mirror trade data as South Korea largely ships manufactured goods such as cars and computers, leading analysts to expect an improved picture in next month's data.
NEXT RATE MOVE
Analysts have forecast inflation will reach an annual 1.5 percent in September, slightly up from 1.4 percent in August and far below the central bank's target band of 2.5 percent to 3.5 percent.
They said Tuesday's data dashed hopes for a quick rebound and may put pressure on the Bank of Korea to ease monetary policy, but a majority in a Reuters poll last month forecast the next policy move will be a hike.
"The economy stands a chance of moving into the 1-percent growth range in the third quarter as the second quarter was weak. Construction is still good and consumption numbers are also getting better," said Kim Jong-su, an economist at Taurus Investment & Securities.
"The central bank will want to keep an accommodative stance while observing government policy effects. We see a hold for October, with 'cut' views in the market lingering." In a report out on Tuesday, the Bank of Korea said the economy is on a path of steady recovery although it faces downside risks from softened global demand and weakened consumer sentiment at home.
It reiterated its view that the economy will operate at high capacity next year, with inflation returning to the 2-percent range.
"The economic recovery will be steady but it won't be one where we see indicators become better and better every month," said Kim Jun-il, a deputy governor at the central bank told a press conference.
A survey by Reuters last month showed 18 out of 26 analysts forecast the central bank's next policy move will be a rate hike sometime next year, while the remaining eight saw a cut by year-end.
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