South Korea's Factory Output Falls 2.4% in October

By William Sim

Nov. 28 (Bloomberg) -- South Korea's industrial production fell for the first time in 13 months in October, adding to concern the economy is headed for its first recession in a decade.

Output dropped 2.4 percent from a year earlier after rising 6.2 percent in September, the statistics office said today in Gwacheon. The median estimate of 13 economists in Bloomberg News survey was for a 0.1 percent gain. Production fell 2.3 percent from September.

Exports rose at the slowest pace in 13 months in October and companies are responding by cutting production. Posco, Asia's biggest maker of stainless steel, will slash planned output by about one-third this quarter; Hyundai Motor Co. has cut overtime production of its sport-utility vehicles and small trucks.

“It seems inevitable that output will fall as the economy slows,” said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. “It's a matter of how much things will get worse.”

South Korea has pumped funds into its financial system, boosted public spending, cut taxes and lowered interest rates to cushion the economy from the global credit crisis and recession.

President Lee Myung Bak this week called for more measures to create jobs and spur spending in the ailing economy.

The won advanced 0.9 percent to 1,463 per dollar at 1:45 p.m. in Seoul. The Kospi stock index climbed 1.6 percent to 1,080.23.

Global Crisis

Japanese manufacturers also reduced production in October and plan further cutbacks as a worsening global financial crisis weakens exports and deepens the country's recession.

The slowdown in the U.S., Europe and Japan, the world's top three economies, is taking a toll on developing markets. Sagging growth compelled China's central bank to cut its benchmark interest rate by the most in 11 years.

Sales of consumer goods fell 1.4 percent in October from September and dropped 3.7 percent from a year earlier, today's report showed. Construction orders plunged 23.9 percent from a year earlier and investment in factories fell 7.7 percent.

A leading index of economic indicators, which forecasts business activity, fell 1.3 percent last month from a year earlier after declining 0.8 percent in September.

South Korea's $970 billion economy grew at the slowest pace in four years in the third quarter. Macquarie Securities Ltd. this week forecast growth will contract 2 percent next year and UBS AG said Nov. 21 the economy will shrink 3 percent in 2009.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.