South Korea industrial production likely to slip in October, exports to contract too

Industrial production in South Korea is expected to witness a decline during the month of October, with a contraction to be seen in the country’s exports as well. Although the end of the Hyundai labor strike can resolve the weakness, Samsung’s still persisting recall issue will limit growth in these sectors.

South Korea’s industrial production is expected to slip -0.1 percent m/m, on a seasonally adjusted basis in October, or -0.6 percent y/y. Exports are likely to continue to contract in November, by -2.7 percent y/y. These could be inferred from the weakness in PMI and preliminary trade data released earlier, DBS reported.

The adverse impact of the anticorruption law, which took effect in September, should have started to surface. The recent political storm may also hit consumer sentiment, which would be reflected in the actual consumption data from November onwards, thus, weighing on the country’s retail sales as well.

It seems that political chaos will continue for quite some time. President Park has refused to resign despite mounting public pressures. The opposition parties hence have decided to push for impeachment, which could be a lengthy process that takes six months or even more.

Further, the risks of power vacuum and policy paralysis are non-negligible, which will have negative implications for not only the short-term but also the medium-term growth prospects in 2017.

Meanwhile, recent rally of the US dollar has induced capital outflows and the won’s depreciation. Inflation has also bottomed out thanks to higher energy prices and a weaker. With the benchmark rate set at 1.25 percent, the Bank of Korea’s monetary policy should be considered as sufficiently accommodative for the time being, the report added.