South Korea factory output growth at over 5-year high but recovery still fragile

SEOUL (Reuters) - South Korea's industrial output in December grew at its fastest pace in more than five years over the previous month, but analysts are wary about the economic outlook as businesses remain pessimistic due to deteriorating global growth.

Output rose by a seasonally adjusted 3.0 per cent in December on monthly terms, following a downwardly revised 1.0 percent rise in November, Statistics Korea data showed on Friday. The initial reading for November was up 1.3 per cent.

December's growth rate was the fastest since a 3.7 pe rcent gain in September 2009 and topped a median 1.0 per cent rise tipped in a Reuters survey of 13 analysts, with forecasts ranging from gains of 0.2 per cent to 2.4 per cent.

"It is difficult to say that output has fully recovered just by looking at today's numbers. Growth was considerably weak in the fourth quarter and we see that dullness continuing into the first quarter of this year," said Chae Hyun-kee, an economist at KTB Securities in Seoul.

Adding to the uncertainty, a survey published earlier in the day showed business sentiment fell to a two-year low as respondents were cautious over an uncertain global outlook and tepid demand for Korean exports.

An official from the statistics agency attributed the output growth to the absence of negative factors, such as strikes, and said the first quarter will likely be a better measure of the strength of recovery in factory activity.

Slowing growth in China, South Korea's biggest export market, and gloom in Europe have sucked momentum out of Asia's fourth-largest economy.

South Korea's economy expanded by just 0.4 per cent in the October-December period on-quarter, less than half of the 0.9 per cent gain in the third quarter as government spending was cut while exports lagged.

The same Reuters poll also forecast January exports to have dropped 4.5 per cent on a yearly basis, which would be the worst fall since February 2013. The trade data are due on Sunday.