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UPDATE 2-Samsung Galaxy Note 7 crisis cited as S.Korea Oct factory output sags
November 30, 2016 / 12:15 AM / a year ago

UPDATE 2-Samsung Galaxy Note 7 crisis cited as S.Korea Oct factory output sags

* Factory output falls 1.7 pct from Sept

* Analysts saw a 0.1 pct decline in a Reuters poll

* Output hurt in part by scrubbing of Galaxy Note 7 (Adds analyst quote, more details)

By Cynthia Kim

SEOUL, Nov 30 (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.

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.

The average factory operation rate fell to 70.3 percent in October from 71.6 percent in September, staying close to the lowest level since the global financial crisis of 2009.

In monthly terms, industrial output declined 1.7 percent in October on a seasonally adjusted basis, government data showed on Wednesday.

The drop comes after a revised 0.6 percent gain in September on monthly terms, and is weaker than a 0.1 percent decrease estimated by analysts in a Reuters poll.

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

South Korea’s is gripped by a political scandal involving President Park Geun-hye and some of the nation’s biggest companies, which has raised fears of policy paralysis at a time when exports are falling.

Speaking at a policy meeting earlier on Wednesday, Finance Minister Yoo Il-ho said the political scandal has increased downside risks to the economy as it undermined 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 issued.

Lee added that it was 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 percent from September while output of electronic components fell 3.7 percent, driving the overall index down, although car production rose 4.7 percent from a month earlier.

Service sector output saw a 0.2 percent fall in October from a month earlier after a revised 0.7 percent decline, in a sign that the outlook is worsening even for one of the few bright spots this year. SHIPPING SECTOR RESTRUCTURE BITES

Analysts say the ongoing restructuring of marginal companies across shipbuilding and shipping industries will restrain production and further reduce the factory utilization rate, which is already at a cyclical low.

Daewoo Shipbuilding & Marine Engineering Co Ltd, one of the world’s three largest shipyards, is currently suffering from a big drop in orders, while the nation’s biggest shipper Hanjin Shipping Co Ltd is under court receivership.

“Given that those sectors are undergoing restructuring, their priorities through the end of December would be to push out inventories or finish whatever they have started before the year ends,” said Moon Jung-hui, an economist with KB Investment & Securities.

Reporting by Cynthia Kim, additional reporting by Yun Hwan Chae; Editing by Eric Meijer

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