South Korea's Factory Activity Witnesses Surge Due to Chip and Car Manufacturing

South Korea's factory output unexpectedly increased in May, led by cars and chips, according to official data released on Friday, while retail sales also increased last month, an encouraging sign for the country's slowly recovering economy.

The industrial output index increased 3.2 percent on a seasonally adjusted monthly basis in May, according to Statistics Korea data, compared to losses of 0.6 percent in April and 0.8 percent predicted in a Reuters poll.

The increase also exceeded the poll's highest estimate of a 2.8% increase.

Automobile output increased 8.7% month on month, while semiconductor output increased 4.4%, while communication devices decreased 16.9%.

Factory output fell 7.3 per cent on an annual basis, which was also milder than a 9.0 per cent decline in April and 8.4 per cent drop expected by economists.

The finance ministry said after the data that it showed the economy was on a recovery path after a slight correction the previous month. Downward pressure has eased though risks remain, it added.

Factory output will rebound in the second quarter after four straight quarters of losses, as exports bottom out, the ministry said.

The all-industry production index, which includes both the manufacturing and services sectors, rose 1.3 per cent in May on-month, recouping April's 1.3 per cent loss.

Retail sales rose 0.4 per cent in May, after dropping 2.6 per cent in April, which was the worst in five months.