South Korea's industrial output grew 0.3 percent last month from a month earlier as falling output in the manufacturing sector was offset by a rise in production of the service industry, a government report showed Friday. All-industry index, which gauges overall industrial activities, stood at 132.5 in July, up 0.3 percent from a month before, according to Statistics Korea. The figure was up from a 0.3 percent on-month decline tallied in June. From a year earlier, the index advanced 1.6 percent in July, up from a 0.3 percent on-year growth for June. Output in the mining, manufacturing and electricity & gas sectors retreated 1.6 percent in July from the previous month, down from a 0.6 percent on-month reduction for June. From a year before, the production rose 0.3 percent last month, down from a 1. 4 percent on-year expansion in June. The falling output came as faltering exports led to sluggish domestic production "Production growth has been hovering at the range of 0 to 2 percent on an on-year basis for the past few months, which is well below potential, as weaker global demand weighs on the country's export manufacturing sector," Moody's Analytics said in a report before the data release. Exports, which account for around half of the South Korean economy, dropped 8.8 percent in July from a year earlier. For the first 20 days of August, exports totaled 22.5 billion U.S. dollars, far short of the range of 27.5 billion to 31.2 billion dollars for the January-July period, confirming that external demand remained weak. The August trade balance data was scheduled to be released on Saturday. Domestic demand also remained in a tender state. Auto production tumbled 9.2 percent last month, and local auto sales recorded a negative growth in July. "Given the precarious state of the global economy, it should be easy to predict the domestic economy will weaken in the third quarter," said Suh Dae-il, an economist at Daewoo Securities. Production in the manufacturing sector, which makes up around half of all industrial output, declined 1.8 percent in July from a month earlier, after contracting 0.6 percent in June. From a year before, the output rose 0.3 percent last month, down from a 1.5 percent on-year growth in June. Weak demand for chips, parts and automobiles contributed to the on-year decline, but demand for chemical products remained solid, the statistical agency said. Shipment in local manufacturers contracted 1.8 percent on-month in July due to a decline in chips, parts and autos, while inventory in the sector fell 0.1 percent over the same period. Local manufacturers operated at an average capacity of 77.2 percent last month, down 0.9 percentage point from the previous month. The factory utilization rate stood at 79.9 percent a year earlier. Production in the service industry advanced 0.7 percent on- month in July, a turnaround from a 0.2 percent on-month fall for June. Upswing in finance, insurance, wholesale and retail sectors offset downswing in sports, leisure and education areas. The Asia's No. 4 economy saw its real sales grow 3.4 percent in June from a month earlier, a turnaround from a 0.5 percent contraction in June. Facility investment logged a 2.5 percent expansion in July from a month before, a turnaround from a 5.9 percent decline in June. Rising investment in the machinery sector offset a fall in the transport equipment area. The value of construction completed at a constant price gained 6.8 percent on-month in July, and the figure for construction orders received at a current price jumped 23.8 percent in July from a year before. The leading index of economic indicators, which gauges business activities around six months ahead, rose 0.2 point on-month 100.2 in July, and the coincident index, measuring current economic conditions, advanced 0.2 point to 99.1.