Finance ministry sees August output dip as temporary

South Korea's finance ministry said Wednesday that industrial production fell 1.3 percent in August from the previous month, a decline it attributed to automaker summer holidays and a base effect from June's sharp gain, and predicted a rebound in September.

Mining and manufacturing output dropped 4.8 percent, and public administration fell 2.9 percent, even as the services sector expanded 0.5 percent.

Automobile production tumbled 24.8 percent as carmakers shut plants for the summer break, dragging down the rubber and plastics industries that supply them, where output fell 11.0 percent. Even so, mining and manufacturing output remained 16.1 percent higher than a year earlier, extending its run of annual gains to eight months.

Construction reversed course, rising 1.9 percent from July as both non-residential building, including semiconductor plants, and residential apartment construction increased. On a year-on-year basis, construction output grew for the first time in 28 months.

Retail sales fell 1.8 percent from the previous month, a second consecutive decline. Spending on durable goods such as passenger cars slid 4.5 percent, with vehicle purchases down 13.6 percent, as the end of a car tax cut in late June and large appliance discounts in June and early July pulled demand forward. By retail format, specialist stores gained 4.1 percent, while large discount stores fell 5.9 percent, car and fuel retailers 6.9 percent, department stores 6.4 percent and convenience stores 0.9 percent.

Facility investment declined 9.5 percent from July, hit by a base effect after ship and aircraft purchases were concentrated in the previous month, which pushed transportation equipment investment down 32.8 percent. Compared with a year earlier, facility investment was up 16.1 percent, an eighth straight month of annual growth.

The ministry pointed to September indicators in predicting a rebound. The consumer sentiment index rose to 106.6 in September from 104.5 in August, staying above its long-term average for a fifth month, while exports in the first 20 days of September were 78.3 percent higher than a year earlier and semiconductor exports jumped 259.4 percent. Capital goods imports rose 28.4 percent over the same period, and machinery orders in August climbed 42.2 percent year on year, a fourth consecutive monthly increase.

The ministry said downside risks remain, citing uncertainty over the conflict in the Middle East, rising bond yields as major economies shift toward tighter monetary policy, and the strain on households from prolonged high oil prices. It said it will prioritize stabilizing consumer prices and focus on housing, jobs and household finance.

The cyclical component of the coincident index, a gauge of current economic conditions, rose 0.5 point to 101.7, while the leading index edged down 0.1 point to 104.2 as the benchmark stock index and construction orders declined.