South Korea's January factory output falls at fastest pace in a year

South Korea's industrial output fell at its fastest pace in a year in January as production of key export items such as semiconductors and cars weakened, lending strength to views the central bank may lower rates again soon.
The weak production data came ahead of a separate private-sector survey that showed manufacturing activity contracting at its fastest pace in six months as poor exports leave Asia's fourth-largest economy struggling to mount a solid recovery.
Factory output in January fell 1.8 percent from December in seasonally-adjusted terms, far worse than a revised 0.5 percent gain for December and a median 0.6 percent slip tipped in a Reuters survey.
It was also the sharpest decline since a 3.5 percent drop in January 2015.
"We do not feel South Korean exports will improve within a short period of time," said Stephen Lee, an economist at Samsung Securities in Seoul, pointing to low oil prices and sluggish demand from China.
"There is a high chance that the Bank of Korea will lower rates within the first half of the year to support growth in consumption amid downward economic pressures."
A finance ministry statement following the industrial output data said production and investment were affected by a severe decline in exports in January.
Factory output was hit by reduced production of semiconductors and cars in January, which dropped 10.1 percent and 3.6 percent, respectively, in monthly terms. Indices of car and durable goods production hit their lowest levels in 11 months. Semiconductors fall under durable goods in the industrial output index.
Meanwhile, the Nikkei/Markit purchasing managers' index showed South Korea's manufacturing activity contracted at the fastest pace in six months in February.
Market views for another interest rate cut by the Bank of Korea from the current record-low 1.50 percent have grown in the past month as exports show no sign of picking up and a recovery in domestic consumption loses steam.
The BOK next reviews policy on March 10.
Data out on Tuesday showed South Korean exports in February extending their period of monthly declines to the longest stretch on record as a slowdown in China put trade-reliant economies under pressure. In annual terms, output fell 1.9 percent in January, following a revised 2.2 percent fall in December and compared with a 2.2 percent drop tipped in the Reuters survey.
Service-sector output in January slumped by a seasonally adjusted 0.9 percent from the previous month, reversing a revised 0.9 percent gain in December as demand for entertainment, sports and leisure slipped, the data showed.
The average factory operation rate was 72.6 percent in January - the lowest since April 2009.