Korean Exports Surged In September

South Korea's industrial production rose more than expected in August, while September exports surged to record levels on a daily basis, showing that the economy continues its healthy growth despite the U.S. subprime-mortgage crisis.

Other data released Monday were also mostly robust, with the leading economic indicator up in August, along with private spending and business investment, although corporate sentiment was down a touch from its long-term highs. "We expect buoyant growth and high headline inflation to reinforce the Bank of Korea's tightening bias," ING analysts said in a note to investors, predicting a rate hike in the first quarter. Consumer price data are due Tuesday. Industrial output rose a seasonally adjusted 0.8% in August from July, the National Statistical Office said. Production slowed from the prior month's 2.0% gain but beat the 0.3% rise forecast by economists. Output was up 11.2% in August from a year earlier, below July's 14.3% gain but above the forecast 10.6% rise. The solid output growth was helped by strong exports in semiconductors and liquid-display devices. "Industrial production recorded a fifth consecutive month of month-on-month growth, which showed that the economy is on a robust growth momentum," said economist David Kim at Woori Investment & Securities. Korea's exports fell on year in September for the first time in more than five years, but analysts largely dismissed the decline, which resulted from the loss of four working days for Korea's Chusok holiday. The holiday was in October last year. Exports were down 0.4% to a preliminary $29.55 billion but averaged a record $1.52 billion a day, up 20% on year, the Ministry of Commerce, Industry and Energy said. Imports fell 2.1% to $27.06 billion for a trade surplus of $2.49 billion, well above the $1.89 billion economists had forecast and above the August surplus of $1.42 billion.

Trade Surplus On Track to Meet Full-Year Target

Korea's financial markets shrugged off the Chusok wobble, with the Korea Composite Stock Price Index rising 0.8% to a two-month high of 1962.67 and the won pressing to 10-year highs, with the dollar falling to KRW913.70 from Friday's KRW915.10. The benchmark five-year government bond yield rose 1 basis point to 5.53%. The leading index, indicating how the Korean economy will do in the coming months, rose in August, with the 12-month moving average accelerating to a 6.4% on-year rise from July's 6.0%. The consumer goods sales index rose a seasonally adjusted 0.6% in August from July, slowing from 1.6% the prior month. Sales were up 7.1% on year, compared with July's 9.8% increase. Capital investment rose 1.7% on year in August, picking up from a 1.0% gain in July on investments in the auto and transportation sectors. The Chusok effect is set to knock September's industrial output data "drastically," but if the September-October performance averages an 8% gain, "the economy would be keeping to its healthy pace of growth," said Kim Jong-Su, an economist at NH Investment & Securities. Similarly, the government expects export growth to rebound sharply in October, possibly more than 20% on year, said Oh Jung-Kyu, director-general for trade and investment promotion at the Commerce Ministry. Korea's trade surplus, at $12.63 billion for January-September, can still easily meet the government's full-year target of $15 billion, Oh told a news briefing. But Korea's export-dependent economy isn't immune from overseas conditions, which caused business sentiment for October to tick down from September's 17-month high. The Bank of Korea's manufacturers' outlook index edged down to 94 from September's 95, weighed by the stronger won, a fall in the prices of semiconductors - a key export - and rising oil and raw-material costs. The index stayed below the benchmark 100 level, where it has been since January 2003, indicating more respondents think business conditions will worsen than improve. But an index for nonmanufacturing firms rose to 91 from 89, despite tougher competition and a slow recovery in domestic demand, the central bank said.