S. Korea's industrial output drops 1.5 pct on-month in Jan.

South Korea's industrial output shrank for the first time in five months in January amid worries that industrial activities might be slowing amid toughened economic conditions, a government report showed Thursday.

According to the report by Statistics Korea, production in the mining, manufacturing, gas and electricity industries dropped 1.5 percent last month from a month earlier. It is the first on-month output contraction since August.

The output still expanded 7.3 percent compared with a year earlier, rebounding from December's revised 0.5 percent decline.

The service-sector output shrank 0.9 percent on-month while growing 1.7 percent on a year-on-year basis, the report showed.

"The January output declined across the board driven by falls in manufacturing, electricity, gas, steam and water supply businesses," the report explained.

The mining sector output registered a 1.7 percent on-month decline, while the manufacturing sector saw its production inch down 1.1 percent over the same period, the report showed. The output in the electricity, gas, steam and water supply service sectors dropped 8.7 percent.

The anemic production figures come amid worries that the country's economy might be losing steam in the face of lingering uncertainty at home and abroad.
The rising value of the local currency against the U.S. dollar and the Japanese yen, in particular, is weighing on many exporters, one of South Korea's key growth engines.

South Korea's economy grew 2 percent last year, the lowest growth in three years, and the government recently slashed its growth outlook for this year from 4 percent to 3 percent. Experts worry that the expansion rate could fall into the 2 percent range again, considering tough external market conditions.

Murky business outlooks seem to be causing many companies to stay away from making bold investments.

The report showed that facility investment plunged 13.6 percent on-year in January, marking the ninth straight month of contractions. From a month earlier, it also declined 6.5 percent, reversing from the previous month's 6.3 percent gain.

Sluggish investment on transportation equipment and machines drove the overall decline in corporate spending on facilities, according to the report.

The average facility operating ratios in the manufacturing sector dropped slightly to 78.1 percent in January from 78.4 percent in December.

The investment figures come a day after a group of think tanks here voiced concerns that prolonged sluggish corporate spending could undercut South Korea's growth potential, causing its economy to enter a phase of low growth going forward.

Consumer spending, another pillar of the country's economic growth, also remained in a slump.

Retail sales dropped 2 percent last month from a month earlier as consumers spent less on vehicles, computers and home appliances, the report showed. From a year earlier, it contracted 2.8 percent.

"Businesses tend to reduce risk-taking as economic outlooks remain murky. Anemic consumer spending is also a factor that companies are reluctant to expand investment," said Lim Hee-jung, an economist at Hyundai Research Institute, a private think tank.

"The government is required to find ways to bolster corporate investment by pushing for deregulation and providing more incentives at a time when we need to find a virtuous cycle between consumer spending, investment and economic growth," he added.

Meanwhile, the agency said that it has revised its benchmark year from 2005 to 2010 in measuring the country's industrial output index to better reflect the current economic and business conditions.

The agency also reduced the number of products being monitored for the index from 633 to 613 by excluding such products as digital cameras, CD drives and cathode-ray tube TVs as demand for these items has diminished sharply or most production has moved to foreign countries. (Yonhap News)