WRAPUP 2-Japan, S.Korea factory output slumps as Asia shifts down

* Japan Oct factory output drop sharpest since Feb 2009

* S.Korea industrial output falls 3rd month in row

* Japan, Korea data follow Q3 slowdown in much of Asia

* Japanese Nov export orders gauge weakest in year

* India stands out, growth stronger than expected

(Updates with India July-Sept GDP)

By Stanley White and Kim Yeonhee

TOKYO/SEOUL, Nov 30 (BestGrowthStock) – Factories in Japan and
South Korea cut output in October, adding to evidence of an
Asia-wide slowdown and boding ill for the rest of the world
that has relied on the region to keep the global economy
humming.

Japanese companies cut production for the fifth month and
by the biggest margin since February 2009, while South Korea’s
industrial output fell for the third month in a row,
disappointing markets which had bet on a rebound.

In contrast, India asserted itself as a regional standout,
reporting on Tuesday that its economy grew 8.9 percent in the
past quarter from a year earlier.

Asia’s third-largest economy handily beat market
forecasts, but it has a long way to go to become a global
source of demand that could fill the void left by debt-ridden
Europe and the United States, which are struggling to take off.

The fall in Japan’s output was expected — in fact a drop
of 1.8 percent was smaller than the forecast 3.3 percent
decline — after a key stimulus measure, incentives for buyers
of fuel-efficient cars, expired in September, and exports
continued to cool.

The drop, however, cemented expectations that the world’s
third-largest economy after the United States and China would
contract in the final quarter of the year after a
stimulus-driven spurt in the third quarter.

South Korea, among the first economies to regain cruising
speed after the global recession, is also losing steam, though
Seoul still bets on solid export growth next year.
[ID:nBJL002108]

“The inventory rebuilding cycle after the recession has
come to an end, and what we’re left with is final domestic
demand, which isn’t doing that well across the globe,” said
Dariusz Kowalczyk, senior economist and strategist at Credit
Agricole CIB in Hong Kong.

“We will see some slowdown in G3 economies and Asia next
year. With the European situation unravelling, the risks are
more conspicuous.”

Weak output reports added to the bearish tone in financial
markets, with Asian stocks and the euro
under pressure from fears that other euro zone nations may be
forced to seek help after Ireland’s 85 billion euro rescue.

ASIAN ECONOMIES COOLING MORE THAN EXPECTED?

The numbers follow reports from across Asia that showed
most economies were losing traction in the third quarter
faster than thought as the initial spurt of foreign demand
late last year and early in 2010 waned.

Economists had long expected Asia and the world economy
would slow in the second half of this year and early in 2011
as the rebuilding of inventories that had been depleted during
the recession was drawing to an end and the effects of
stimulus packages were wearing off.

But the cool-down came sooner and turned out to be more
pronounced than many economists had anticipated. The economies
of the Philippines, Thailand and Singapore all contracted in
the past quarter, while growth in South Korea, Taiwan and
Indonesia slowed markedly.

That leaves China, which slowed only marginally to a 9.6
percent annual clip in the third quarter, and India, as the
mainstays of growth in the region.

However, Beijing’s fears that inflation may get out of
hand mean the authorities will probably try to cool the
economy further.

Japan’s production data coincided with a purchasing
managers’ survey for November that showed a third consecutive
decline in manufacturing activity and a sharp drop in export
orders. Official data also showed household spending fell last
month, boding ill for the final months of the year.
[ID:nTOE6AT00J]

Manufacturers’ forecasts that they would crank up
production in November and December offered some hope, but did
little to change expectations that the Bank of Japan will keep
its ultra-loose monetary policy and stand ready to ease it
further.

The central bank would probably do it by topping up its 5
trillion yen asset buying scheme after it has already
effectively pushed interest rates down to zero.

In South Korea, a surprising 4.2 percent drop in output in
October from September convinced analysts that the central
bank there will keep rates on hold in December after a rise
this month, but economists and businesses were more upbeat
about the outlook than their Japanese peers.

“Since the policy effects, such as advanced budget
spending in the first half of this year fizzled, the decline
was inevitable but is merely technical,” said So Jae-yong at
Hana Daetoo Securities.

“Because facility investment and exports are maintaining
strong momentum, the economy will remain fundamentally at a
solid pace.”

(Additional reporting by Rie Ishiguro, Yoo Choonsik, Manoj
Kumar and Rajesh Kumar Singh; Writing by Tomasz Janowski;
Editing by Neil Fullick)

WRAPUP 2-Japan, S.Korea factory output slumps as Asia shifts down