More chips and cars: High demand supports South Korea’s factories

South Korea’s March factory output jumped by the most in 11 years as demand for display panels and cars received an unexpected boost from lengthy shutdowns in competing Chinese factories amid the coronavirus pandemic.

Industrial output surged by a seasonally adjusted 4.6 percent in March from a month earlier, government data showed on Wednesday, marking the biggest expansion since a 7.3 percent jump in February 2009 and handily beating a 1.3 percent fall expected in a Reuters news agency survey.

Production of electronic components including display panels soared by 12.7 percent while automotive output surged by 45.1 percent, as virus-related production disruptions in China benefitted Korean manufacturers. The launch of new car models also helped.

“Output of electronic components were seen weakening before March but demand surged in March on production disruptions at Chinese companies,” a Statistics Korea official said.

The boost is likely to be short-lived, however, as factories in China gradually restarted operations, he added.

Despite the surprise output surge, the prospect of a recession is growing in Asia’s fourth-largest economy.

The coronavirus pandemic pushed South Korea’s economy into its biggest contraction since 2008 in the first quarter, as self-isolation measures hit consumption and global trade slumped.

President Moon Jae-in on Tuesday said growth readings for the economy are likely to worsen in the second quarter with the deepening effect from the pandemic.

On a year-on-year basis, the factory output jumped by 7.1 percent, compared with a 11.3-percent rise in February.

One of South Korea’s largest conglomerates is already feeling the pinch. Samsung Electronics Co Ltd said on Wednesday it expected its profit to decline in the current quarter, as strength in the chip business would be offset by a sales slump in smartphones and TVs.

Samsung said its first-quarter operating profit rose by 3 percent in the January-March period, in line with an earlier estimate, as the stay-at-home trend due to the COVID-19 pandemic cushioned the virus blow.

The tech conglomerate’s chip business is benefitting from demand for servers and computers as stay-at-home orders force millions of people around the world to convert their homes into offices.

But sales of TVs and smartphones have slowed as recession-wary consumers postpone purchases of non-essential consumer electronics, a trend seen across the global tech industry.

“Sales and profits of set products business, including smartphones and TVs, are expected to decline significantly as COVID-19 affects demand and leads to store and plant closures globally,” Samsung said in a statement.

The world’s top maker of memory chips and smartphones reported an operating profit of 6.4 trillion Korean won ($5.2bn), compared with 6.2 trillion won ($5.09bn) a year ago and its earlier estimate of 6.4 trillion won ($5.26bn).

It said net profit fell by 3 percent to 4.9 trillion won ($4.02bn), while revenue climbed by 5.6 percent to 55.3 trillion won ($45.41bn).

Samsung Electronics shares fell by 0.8 percent in a flat wider market in morning trade on Wednesday. The shares are down by 10 percent so far this year, in line with the wider market.