S.Korea Feb factory output worst in over 8 years, but weakness seen passing

Employees assemble vehicle chassis modules on the production line at the Hyundai Mobis factory in Asan, South Chungcheong, South Korea, on Tuesday, Jan. 24, 2017
SeongJoon Cho | Bloomberg | Getty Images

South Korea's industrial output plunged at the fastest pace in more than eight years, government data showed on Friday, erasing gains seen in the previous month and dragged down by semiconductor production.

In monthly terms, factory output fell by a seasonally adjusted 3.4 percent in February from a month earlier, marking the sharpest drop since late 2008 when output plummeted 10.6 percent. A Reuters poll projected output would show no growth from a month earlier.

The decline was largely due to the unusually sharp 2.9 percent jump seen in January, revised down from a 3.3 percent rise seen earlier.

Statistics Korea said smartphone manufacturers had opted to use inventories as sales turned sluggish last month, although this was seen as temporary ahead of Samsung Electronics launching its latest flagship phone, which it did on Thursday.

The government shrugged off Friday's gloomy data, seeing South Korea's economy still on its way to recovery.

Green shoots in the South Korean economy

"Despite political risks in the country, we determine the economy is expanding at a pace for growth in the mid-2 percent range," Lee Ho-seung, director general of the economic policy bureau at the ministry, told Reuters.

From a year earlier, output jumped 6.6 percent in February after a revised 1.4 percent gain in the previous month, Statistics Korea said. Previously, th output gain had been reported at 1.7 percent.

Factory output data tends to be volatile, even after adjustment for seasonal factors.

Retail sales shine, worst over?

Semiconductor output dropped 11.5 percent in February from a month earlier, while auto output fell 6.1 percent over the same period.

Service sector output edged up just 0.1 percent on-month, compared to a 0.3 percent rise in January in seasonally adjusted terms, also revised slightly down from 0.5 percent reported earlier.

This could hurt the South Korean economy

However, retail sales jumped 3.2 percent from a month earlier, bouncing from a 2.0 percent fall on demand for cars and cosmetics, according to Statistics Korea, easing some concerns over soft consumption.

Chinese vendors had boosted sales in February to hoard products ahead of suspected measures by China to curb South Korea business there, in retaliation against the deployment of the Terminal High Altitude Area Defence (THAAD) system in South Korea, a statistics official said.

Park Jung-woo, an economist at Korea Investment and Securities, said the worst has likely passed.

"Economic growth just below 3 percent may even be possible," Park said.

"Looking at investment and construction orders, the local economy seems to be doing better than expected."