South Korea factory output slips unexpectedly in December, flags slow monetary tightening

SEOUL (Reuters) - South Korea's industrial production unexpectedly fell in December, failing to recover after barely expanding in November as car output contracted sharply, national statistics agency data showed on Wednesday.

Factory output contracted by 6 percent in December from a year earlier, marking another sharp decline after a 6.3 percent drop in October, the biggest fall since 2013.

The median forecast of analysts surveyed by Reuters was for output to rise 0.1 percent from November, and dip by 1.4 percent from a year earlier.

"Growth momentum from auto sector was weak in both November and December because of union strikes. Overall production growth is still led by the IT sector," Park Sang-hyun, chief economist, HI Investment & Securities.

Car production dropped 11.4 percent from a month earlier while output of machine tools fell 4 percent.

Park added the Bank of Korea will not be able to raise its policy interest rate in the first quarter given the uneven growth path, but "may be able to make a move in the second quarter should exports and the global economy hold up".

The BOK held its policy interest rate steady in January after raising it for the first time in more than six years to 1.50 percent in November. The bank flagged concerns over economic uncertainties and soft inflation, which remain hurdles to policy tightening this year.

Thursday's data showed production of memory chips expanded 2.9 percent from a month earlier and the output of communications equipment surged 27.3 percent.

In annual terms, car production contracted by 25.2 percent, while output of electronic equipment grew 19.3 percent, the statement showed.

December service sector output gained 0.2 percent from previous month after growing 2.5 percent in November.

(Reporting by Cynthia Kim; Editing by Eric Meijer)