South Korea October factory output declines more than expected

A factory is seen in Incheon, South Korea, on May 30, 2016.
A factory is seen in Incheon, South Korea, on May 30, 2016.PHOTO: REUTERS

SEOUL (REUTERS) - South Korea's tepid factory output sagged even further in October as production of electronic components and telecommunications equipment fell, clouding the economic growth outlook.

In monthly terms, industrial output declined 1.7 per cent in October on a seasonally adjusted basis, data showed on Wednesday. The average factory operation rate fell to 70.3 per cent in October from 71.6 per cent in September. The drop comes after a revised 0.6 per cent gain in September on monthly terms.

On an annual basis, industrial output fell 1.6 per cent in October after a revised 1.7 per cent drop in September, compared with a median 2 per cent decline tipped in the same survey.

South Korea's economy is reeling from a political scandal involving President Park Geun-hye and some of the nation's biggest companies, which have raised fears of policy paralysis at a time when exports are falling.

Speaking at a policy meeting earlier in the morning, finance minister Yoo Il-ho said the political scandal has increased downside risks to the economy, as it is contracting consumer and investor sentiment in broad terms.

"Output figures are expected to remain sluggish for the time being," Lee Sang-jae, an Eugene Investment & Securities economist said after the data was released. Mr Lee added that it is hard to expect a solid recovery at least until the first quarter of 2017 as "there is an outburst of uncertainties at home and abroad."

Production of telecommunication equipment dropped 18.1 per cent from September while output of electronic components fell 3.7 per cent, driving the overall index down. Car production rose 4.7 per cent from a month earlier.

A finance ministry official attributed the output drop in part to the cancellation of Samsung Electronics' Galaxy Note 7, which would weigh on production across different elements of the supply chain. Service sector output saw a 0.2 per cent fall in October from a month earlier after a revised 0.7 per cent decline, in a sign that the outlook is worsening even for one of the few bright spots this year.