South Korea October factory output declines more than expected

SEOUL (Reuters) - South Korea's tepid factory output sagged even further in October as production of electronic components and telecommunications equipment fell, clouding the economic growth outlook. In monthly terms, industrial output declined 1.7 percent in October on a seasonally adjusted basis, data showed on Wednesday. The average factory operation rate fell to 70.3 percent in October from 71.6 percent in September. The drop comes after a revised 0.6 percent gain in September on monthly terms, and is weaker than a 0.1 percent decrease estimated by analysts in a Reuters poll. On an annual basis, industrial output fell 1.6 percent in October after a revised 1.7 percent drop in September, compared with a median 2 percent decline tipped in the same survey. South Korea's economy is reeling from a political scandal involving President Park Geun-hye and some of the nation's biggest companies, which have raised fears of policy paralysis at a time when exports are falling. Speaking at a policy meeting earlier in the morning, finance minister Yoo Il-ho said the political scandal has increased downside risks to the economy, as it is contracting consumer and investor sentiment in broad terms. "Output figures are expected to remain sluggish for the time being," Lee Sang-jae, an Eugene Investment & Securities economist said after the data was released. Lee added that it is hard to expect a solid recovery at least until the first quarter of 2017 as "there is an outburst of uncertainties at home and abroad." Production of telecommunication equipment dropped 18.1 percent from September while output of electronic components fell 3.7 percent, driving the overall index down. Car production rose 4.7 percent from a month earlier. A finance ministry official attributed the output drop in part to the cancellation of Samsung Electronics' <005930.KS> Galaxy Note 7, which would weigh on production across different elements of the supply chain. Service sector output saw a 0.2 percent fall in October from a month earlier after a revised 0.7 percent decline, in a sign that the outlook is worsening even for one of the few bright spots this year. (Reporting by Cynthia Kim, additional reporting by Yun Hwan Chae; Editing by Eric Meijer)