South Korean industrial production at 17 month high

Political Turmoil in the Middle East May Derail South Korea's Recovery

Political Turmoil in the Middle East May Derail South Korea’s Recovery

Latest data released by the government shows South Korea’s factory output has grown fastest in 17 months in the month of January.

Industrial production rose by 4.6% in January ’11 over December 2010. The growth stands at an impressive 13.7% over January 2010.

As economic conditions in South Korea’s key markets improve, demand for its products has been driving the country’s exports.

However, growing oil prices may slow down the recovery, analysts warn. “We had expected the South Korean economy to rebound early this year”, said Na Jung Hyuk – analyst with Daishin Securities.

“However, due to the unexpected turmoil in Libya, output activity could slow”, he cautioned.

South Korea’s exports have been rising at a feverish pace and the country reported a 17% export growth in February over same period last year. However, strong production numbers can stoke inflation, thus overheating the economy.

Compared to February 2010, the consumer price index was higher by 4.5% in February this year, the country’s statistical office reported yesterday.

That makes it higher than the highest level of 4% target set by the central bank.

Kim Hyo-Jin of Dongbu Securities said: “The high consumer price index growth released (on February 2) and today’s strong output data add to the likelihood of an interest rate rise”.

Analysts however are not expecting an immediate rate hike and thinks the central bank will watch the impact of turmoil in Libya and the Middle East before tinkering with lending rates.

The surging crude prices may slow down the global recovery, directly impacting South Korea. Global economic conditions play a big role in the central bank’s policy decisions for the export dependent country.

“Considering external uncertainties, the central bank may need to wait and see for one more month”, added Mr. Kim.

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