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Friday, 31 August, 2001, 05:48 GMT 06:48 UK
South Korea production slumps
Daewoo shipyard
South Korea's export-driven recovery is under threat
South Korea's corporate sector has underperformed for the fourth straight month, with seasonally adjsuted industrial production dropping 1.4% in July.

The fall is less than was seen in June, when production fell 2%.

But on a year-on-year basis, the fall reached 5.9%, the worst figures since October 1998, when the Asian currency crisis caused an annualised 8.8% drop.

According to the National Statistics Office, the worldwide slump in technology spending is largely to blame. Semiconductor exports were the main contributor to the decline, with computer and car production adding to the pain.

Inventories piling up

The NSO also said inventories are expanding, up 15.2% year on year in July, while factory utilisation was down to 71% from 74.1% in June.

And wholesale orders also weakened, adding to the pressure for further cuts in South Korean interest rates.

Lim Ji-Won, economist at JP Morgan in Seoul, said the wholesale downturn was surprising.

"It showed the gloom from flagging exports is quickly filtering through to the private sector," he said.

And Kwon Hyeuk-Boo, from the Daishin Economic Research Institute, said output is set to get even worse.

"The chances are high that economic conditions in Korea and abroad would become worse in the months ahead, hurting consumer sentiment and resulting in lower consumption," he said.

"The Bank of Korea will surely cut interest rates one or two times more to help boost the economy. But they won't do that in September, given that August consumer price inflation was higher than expected."

$110bn on reforms

The news comes as the cost of economic reforms in South Korea is beginning to become clearer.

According to government figures, about 137.5trn won ($110bn; 75bn) of public funds has been spend on restructuring banks and companies since the currency crisis of 1997-8.

About a quarter of that is unlikely ever to be recouped, the government said, although 34.2trn won has already been recovered.

And a further 500bn won is on its way to Hyundai's trust units, to help smooth their sale to US financial services group AIG.

See also:

30 Aug 01 | Business
Daewoo sale deadline looms
23 Aug 01 | Business
Seoul pays off its IMF debts
21 Aug 01 | Business
South Korea's growth slows
09 Aug 01 | Business
South Korea cuts interest rates
03 Aug 01 | Business
Hard landing for South Korea
01 Aug 01 | Business
Korean exports slump
20 Mar 01 | Business
South Korean economy slows
19 Mar 01 | Business
Growth to slow in Asia
19 Mar 01 | Business
Japan cuts rates to zero
16 Mar 01 | Business
Dark clouds over Asia
21 Dec 00 | Business
South Korea strikes spread
16 Nov 00 | Business
Hyundai ends family row
28 Dec 00 | Business
Korean bank strike ends
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