South Korean manufacturing sector sustains expansion

The HSBC South Korea Purchasing Managers’ Index (PMI) posted 52.8 in December, which reflected a marginal improvement from November’s 52.6. This signaled a further strengthening of business conditions within the South Korean manufacturing sector, and extended the sequence of sustained expansion to 10 months.

New order volumes rose solidly in December, although the pace of growth slowed marginally since November. However, the rise in incoming new business was sustained for a tenth successive month. Survey evidence suggested that domestic demand had remained strong, but the pace of new export order growth had eased modestly in December. Nonetheless, incoming new business from overseas increased marginally, and extended the sequence of sustained growth to 10 months.

Reflective of the rise in new order volumes, production expanded in December. The pace of output growth was robust, and the strongest in three months.

December data indicated a marginal decline in levels of outstanding business at South Korean manufacturers. This suggested that the latest rate of output expansion was more than sufficient to deal with the pace of new order growth. However, some panelists reported that efficiency had improved, therefore reducing backlogs. Additionally, stocks of finished goods were depleted at the fastest pace in 17 months.

Employment rose at its fastest rate in twenty-three months during December. Panelists noted that staffing levels had increased in response to higher output requirements, reflective of the rise in new orders.

South Korean manufacturers reported a marked increase in purchasing activity in December, again reflective of increased output requirements. However, suppliers shortened delivery times further, as competition for business remained high.

Input costs faced by the South Korean manufacturing sector increased in December at a marked rate, as raw material prices rose. However, panelists’ pricing power remained weak, with output prices decreasing for a third successive month.

Commenting on the South Korea Manufacturing PMI survey, Frederic Neumann, senior Asian economist at HSBC, said: “Korea remains on a firm expansion path. While external demand growth moderated somewhat in December, as underlined by a modest slowing in the growth indicated by the new export order series, overall output expansion continued to accelerate. In fact, lean inventories suggest that production should continue to expand in the coming months. Meanwhile, strong employment growth, with the relevant PMI subcomponent hitting its highest level since January 2008, suggests that consumption spending should remain well supported. Of slight concern is the fact that input prices are rising while output charges are still falling, pointing to continued margin pressure among producers.”