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South Korea industrial index declines 2.1 points to 46.7

Markit Research

October survey data, compiled by Markit for HSBC, signaled an overall monthly deterioration in business conditions in the South Korean manufacturing sector. The HSBC South Korea Purchasing Managers’ Index (PMI) posted 46.7, down from September’s reading of 48.8. This was the second consecutive month where the headline PMI posted below the 50.0 neutral level.

October data signaled a reduction in new orders received by manufacturers in South Korea. The pace at which new work intakes fell was marked, and in contrast to the long-run series average (which indicates solid growth). New export orders were also reduced during the month, with panelists attributing this to weaker global economic conditions.

Output was reported to have decreased again during October, reflective of the decline in new business. Nonetheless, backlogs of work fell for a second straight month, suggesting that a degree of spare capacity persisted. Panelists also indicated that finished goods stocks had contracted, as inventories were utilized to meet current order obligations.

Employment at South Korean manufacturers rose during October, despite contractions in production and new business. Some companies noted that they expect conditions to improve going forward, although weaker growth in headcounts compared to recent months also reflected the current slowdown in the sector.

October data signaled a reduction in purchasing activity at South Korean manufacturers. This was attributed to lower output requirements. Subsequently, suppliers’ delivery times improved.

Input prices faced by manufacturing companies in South Korea increased markedly during October, driven by rising raw material costs. Moreover, the rate of inflation was the fastest in three months. In contrast, output prices fell for the first time since December 2009 due to strong competition for new business.

Commenting on the South Korea Manufacturing PMI survey, Song Yi Kim, economist at HSBC in Asia, said: “The global restocking bounce has finally come to an end and Korea is feeling the chill. Already grappling with falling output prices, especially in tech products, Korean exporters have also seen a slump in their orders amid fading demand overseas. This will weigh on economic activity in the fourth quarter. Still, domestic demand looks set to remain robust, with positive employment growth and low interest rates lending a welcome hand to consumers. Korea's economy will sail on, but at slightly reduced speed in the coming months.”

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