* April industrial output up for 2nd mth but misses
* May exports to slow, partly on calendar effects
* South Korea first major economy to report May export data
* Domestic consumption partly eroded by ferry sinking
(Adds new details, comments from govt official and new analyst)
By Christine Kim
SEOUL, May 30 South Korea's factory output grew
at a much slower pace than expected in April although businesses
continued to invest in plant and machinery, suggesting Asia's
fourth-largest economy can weather the recent loss of momentum
thanks to improving exports.
Analysts and government officials blamed one-off factors for
some of the weakness seen in data released on Friday, including
last month's ferry disaster which depressed domestic tourism and
The industrial output index, which covers the manufacturing
and mining sectors, rose a seasonally adjusted 0.1 percent in
April from the previous month, following a revised 0.9 percent
rise in March, Statistics Korea data showed.
It was much weaker than a median 0.6 percent gain tipped in
a Reuters survey. Analysts in the same survey predict annual
growth in exports during May to slow to 1.2 percent from 9.0
percent set in April.
Still, the economic picture isn't all gloomy.
A Reuters calculation shows the average export value per
working day would rise some 8 percent to $2.27 billion in May,
up from $2.10 billion in the same month in 2013 despite the
slowdown in overall shipments tipped by analysts.
"We believed that the one-off factors like the ferry sinking
would be offset by robust exports in April, but things seem to
be moving slower than anticipated," said David Kim, an economist
at Daishin Securities in Seoul. "However, we see an improving
trend going forward as exports grow," Kim said.
Analysts also note that part of the anticipated slowdown in
May exports reflects fewer working days this year than last
Still, with domestic consumption continuing to remain weak,
highlighted by the service sector output falling a seasonally
adjusted 1.0 percent in April from March, exports will need to
do much of the heavy lifting to support growth.
Friday's data comes on the heels of news that the U.S.
economy contracted for the first time in three years in the
first quarter as it buckled under a severe winter. But there are
signs it has rebounded and economists say it could grow as much
as 4 percent in the current quarter.
A rebound in the U.S., South Korea's second-biggest export
market, will be crucial to cementing a recovery at home
especially given a slowdown in China's economy.
"Today's figures don't look strong but as a whole indicate
the economy is softening instead of slipping into a sharp
downturn," Park Sang-hyun, chief economist at HI Investment and
The Bank of Korea expects the economy to grow an annual 4.0
percent this year, from 3.0 percent last year. The market's
consensus view also sees the BOK hiking rates as its next policy
move, possibly as soon as the third quarter of this year.
DISTORTION FROM FERRY DISASTER
A central bank survey found on Friday business sentiment
among South Korean manufacturing companies was at its worst in
10 months, with their business outlook index for June falling to
a seasonally adjusted 77 from 79 for May.
Government officials and analysts said last month's sinking
of a ferry, which killed more than 300 passengers and marked the
worst civilian maritime disaster in two decades, darkened the
public's mood and contributed to a freeze in spending in leisure
travel and hotel bookings.
Choi Sung-wook, head of the economic statistics bureau at
Statistics Korea, told a briefing that the effects from the
ferry sinking were expected to dissipate.
On the bright side, the statistics agency data showed
capital investment during April was estimated to have risen by a
seasonally adjusted 2.6 percent on the month, after a 1.2
percent gain in March. It was the first time since July last
year that capital investment had gained for two consecutive
That partly reflects confidence about South Korea's
improving exports, with growing demand from the United States
and Europe offsetting a slowdown in China, the largest market
for South Korean shipments.
The labour market has also remained strong, while the
housing sector has shown firm growth in recent quarters,
supporting policymakers' optimism for the economy's prospects
over the next year.
"Given South Korea's strong reliance on exports, we have a
positive outlook on the local economy," Daishin Securities' Kim
South Korea is the first major exporting economy in the
world to report export data each month, providing early signs of
the strength of the global economy.
(Editing by Choonsik Yoo & Shri Navaratnam)