Major foreign investment banks predicted that South Korea’s industrial output will likely remain weak for some time, citing less demand for its products caused by the toughening external market conditions, a report showed Thursday.

Korea’s industrial output grew 2.8 percent in December from a year earlier, slowing from a 5.8 percent gain in November.

It shrank 0.9 percent on-month in December, marking the third straight month that production declined.

Foreign IBs said that the sluggish global shipyard industry and the fallout from the flooding in Thailand contributed to the slowing production in December by affecting sales of ships and vehicles, the nation’s major export items.

They worried that tough external market conditions, declining demand and high level of inventory could hurt the nation’s production down the road, according to the report by the Korea Center for International Finance, which monitored foreign IBs assessment of the domestic economy.

Citigroup and Credit Suisse, in particular, expected that January exports must have declined due to less working hours caused by the Lunar New Year holidays, saying that it could also contribute to a drop in the overall production.

Nomura also predicted that industrial production will likely remain sluggish for the time being. It cited an almost three-year high of the inventory ratio in the manufacturing sector here.

Some other IBs offered less pessimistic views.

HSBC said that a high inventory ratio in January was caused by one-off factors such as more holidays. The first-quarter industrial output will not likely suffer as sharp a decline as the nation suffered during the 2008 financial crisis, it added.

The overall gloomy view comes as South Korea’s economy is faced with tough external market conditions, which the government worries could serve as a drag on its export-driven economic growth.

The government earlier revised down its economic growth projection from 4.5 percent to 3.7 percent for 2012, saying that exports growth will sharply slow more this year than last year. 

(Yonhap News)