South Korea's factory output unexpectedly increased in May, led by automobiles and semiconductors, according to official data released on Friday, while retail sales also increased in May, indicating that the economy is slowly recovering. The industrial output index increased 3.2% on a seasonally adjusted monthly basis in May, according to Statistics Korea data, compared to losses of 0.6% in April and 0.8% predicted in a Reuters poll.

The increase also exceeded the poll's highest estimate of a 2.8 percent increase. Automobile output increased 8.7 percent over the month, while semiconductor output increased 4.4% and communication devices decreased 16.9 percent. Factory output fell 7.3 per cent on an annual basis, which was also milder than a 9.0 per cent decline in April and 8.4 per cent drop expected by economists.

The finance ministry said after the data that it showed the economy was on a recovery path after a slight correction the previous month. Downward pressure has eased though risks remain, it added.

Factory output will rebound in the second quarter after four straight quarters of losses, as exports bottom out, the ministry said. The all-industry production index, which includes both the manufacturing and services sectors, rose 1.3 per cent in May on-month, recouping April's 1.3 per cent loss. Retail sales rose 0.4 per cent in May, after dropping 2.6 per cent in April, which was the worst in five months.