Korea's industrial production predicted to make a technical rebound

Data is pegged at 1%.

According to DBS, Korea's April industrial production is due this week. DBS analysts only expect a technical rebound of 1.0% MoM sa, following the -2.6% drop in March.

The supply-side drag remained and the demand was weak. The output contraction in March was partly because production in the automobile sector plunged -10%, due to labor disputes in Hyundai Motor.

Here's more from DBS:

Automobile production has started to recover only from end-April. Meanwhile, export demand has remained weak.

Exports fell -3.8% YoY in the first 20 days of May, a similar pace of decline compared to -3.1% during the same period of April. The contraction in China’s flash PMI in May has raised the possibility of a continuation of export weakness in the entire quarter of 2Q.

A domestic demand recovery will only arrive in the second half of this year.

The central bank’s 25bps rate cut in April will help to lower household debt burdens, while the positive effects will work through the economy with a time lag.

The government’s KRW 7trn supplementary budget, already approved by the parliament this month, will be implemented from June. Most of its boosting impact will be felt in 2H13.

For now, the positive news is that inflation is easing due to lower oil prices, which should strengthen households’ real purchasing power.

The decline in commodity prices also reduces import costs for corporates. CPI figures for May are expected to stay low at 1.2% YoY.

Imports registered a big decline of -9.1% YoY in the first 20 days of May. We expect trade surplus to widen to USD 3.8bn in May, the highest over six months.

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