January 31, 2020 / 2:31 AM / 23 days ago

Chips boost South Korea's December factory output, full-year worst since 1998

SEOUL (Reuters) - South Korea’s December factory output exceeded forecasts as soaring chip production fueled industrial activity, but the virus outbreak in China will likely dent demand in January.

FILE PHOTO: An employee talks on a phone at an office building in Seoul, South Korea, October 2, 2018. REUTERS/Kim Hong-Ji

Industrial output jumped by a seasonally adjusted 3.5% in December from a month earlier, government data showed on Friday, easily beating a 0.5% rise tipped in a Reuters survey and marking the fastest jump since November 2016.

Recent economic indicators, including December trade data, have shown signs of recovery in Asia’s fourth-largest economy.

“Production in machinery equipment, especially semiconductor and flat panel displays, boosted the industrial output data,” a statement by Statistics Korea showed.

From a year earlier, production gained 4.2%, also handily outpacing 1.0% forecast in the poll and logging the sharpest increase since October 2018.

Output of memory chips surged 33.8% on year, while that for machines and other transportation equipment increased 15.7% and 9.4%, respectively.

Facility investment in December jumped 10.9% from a month earlier, while it also rose 11.1% year-on-year, thanks to higher demand in chips and cars.

“Today’s bullish data was mainly helped by improvement in facility investment as global uncertainties eased on the ‘Phase 1’ trade deal between the United States and China, as well as the policy mix of the government’s expansionary fiscal policy and the Bank of Korea’s easing monetary policy,” said Ha Keon-hyeong, economist at Shinhan Investment Corp.

For the whole of 2019, industrial output fell 0.7%, the worst reading since a 6.4% dip in 1998. The drag came from facility investment which tumbled 7.6% on year as global demand cooled amid a crash in the semiconductor super-cycle.

The average factory operation rate was 72.9% in 2019, the worst since the Asian financial crisis.

“Due to the economic slowdown last year, restructuring in firms and decreased productivity pulled down the average operation rate,” an official from Statistics Korea said.

But economists are wary that the spreading China virus could weigh on the fragile economy.

The death toll in China from the new coronavirus reached 213 on Friday, with overall cases worldwide rising rapidly in what many fear will hurt global growth.

“The concern is that if the virus spreads like the deadly SARS in 2003, the economic rebound could collapse, instead of being stagnant, so we would have to carefully see the development,” Ha said, adding he sees the recovery momentum to be back in track around March after a temporary slowdown in January.

The statistic agency official also added that the effect of the flu-like virus, originating in the Chinese central city of Wuhan, will be reflected in January figures.

Editing by Jacqueline Wong

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