S.Korea industrial output slumps most in 21 years

02-Jan-2009 Intellasia | Reuters | 7:01 AM Print This Post

South Korea’s industrial output slumped in November by its biggest margin in more than two decades, underscoring the depth of the slump in the economy and the urgency of official efforts to shore it up.

The output figures came after the country’s top financial regulatory agency said Korea Development Bank (KDB) and other state-run financial institutions plan to ramp up financial support for local banks in 2009 by 89% to more than US$8 billion.

South Korea has cut interest rates to a record low, offered guarantees on foreign debt and drawn up a fiscal stimulus package to shore up an export-reliant economy some analysts say will post its first contraction next year since the Asian financial crisis.

Reflecting the tightening grip of the global financial crisis, two surveys showed manufacturing sentiment at multi-year lows and the country’s current account swinging once again into a deficit.

Analysts said the bleak data reinforced their view that the Bank of Korea could slash its already record-low interest rate of 3.0% further in coming months. Bond futures rallied and local stocks gave back most of an early 2.4% gain on fears for the economic outlook.

“The Bank of Korea will cut rates further as the downturn deepens. I think it may cut rates by another 150 basis points by the end of the first half,” said Lee Sang-jae, an economist at Hyundai Securities.

The central bank next reviews policy on January 9.

South Korea’s statistics agency said industrial output fell by a seasonally adjusted 10.7% in November from October, the biggest fall in 21 years, as the global downturn took its toll. [ID:nSEV000562]

From the same year-earlier month, output was down 14.1%.

The data suggests continued pain for the country’s exporters, which are already seeing demand wilt because major markets, including the United States, Europe and Japan, are in recession.

Figures due on Friday are expected to show that South Korea’s exports fell in December from a year earlier for the second straight month. [ID:nSEO292369]


The Financial Services Commission reported to President Lee Myung-bak that the state-run financial institutions would provide a combined 10.2 trillion won (US$8.10 billion) next year to local banks, up from 5.4 trillion in 2008. [ID:nSEO45267]

“These plans are designed for the public institutions to deal with the troubles facing the (local) economy promptly and aggressively,” the commission said in a statement.

Some of the figures have already been included in other government measures announced earlier and reflect the sort of policies being considered globally to help banks through the global credit crisis.

Japan’s government is considering a US$110 billion scheme to buy bad loans and other financial assets to help its banks, the daily newspaper Sankei Shimbun said on Tuesday.

The Korean funds would be used to free up cash at banks, such as by buying local bonds and bad debts, to boost lending or allow the banks to bolster their capital bases.

The central bank said earlier its manufacturing business survey index for January fell to a record-low. The reading marked the seventh consecutive month of decline. [ID:nSEW000032]

Separately, the Federation of Korean Industries, a lobby group for big companies such as Samsung Electronics Co and Hyundai Motor Co , said its business survey index for January dropped to an 11-year low. [ID:nSEO335649]


The Bank of Korea forecast early this month the economy would grow only 2% next year after an estimated 3.6% gain in 2008 as the global turmoil hurts demand for the country’s exports.

But some international investment banks, such as UBS, have warned South Korea’s export-led economy would contract by as much as 3% in 2009, which would mark the first decline in gross domestic product since 1998 when Korea was in the grips of the Asian financial crisis.

In its last day of trading of the year, the Korean stock market closed up a provisional 0.6%, well off the day’s high and down around 40% from 2007 following a record level of foreign selling in 2008.

The won ended local dealings up 0.3% against the dollar, supported by state intervention, and rose 16.6% in December, its biggest monthly gain in nearly 11 years.

But it fell more than a quarter this year hit by sustained capital flight from the country.

Central bank data showed the current account once again swung into a deficit in November, although the balance of payments deficit narrowed as capital flight eased. [ID:nSEO295614]

South Korea is expected to produce its first current account deficit in 2008 for 11 years.


Category: Korea

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