By Jihoon Lee
SEOUL (Multibagger) - In a recent private survey, South Korea's factory activity experienced its sharpest contraction in 15 months in September. This decline was attributed to a slowdown in overseas demand for the first time this year, indicating a potential obstacle on the path to a full economic recovery.
The purchasing managers index (PMI) for manufacturers in South Korea, compiled by S&P Global, dropped to 48.3 in September on a seasonally adjusted basis, down from 51.9 in August. This index fell below the critical 50-mark, which separates expansion from contraction, for the first time in five months, marking the lowest reading since June 2023.
In September, both output and new orders experienced a significant decline after showing growth for five consecutive months, with the steepest slumps in 11 and 15 months, respectively. The survey indicated that sluggish domestic demand played a significant role in the fall in orders, while new export business also saw its first decline of the year.
Notably, export sales to key markets such as China, Japan, India, and the United States weakened according to the survey. Usamah Bhatti, economist at S&P Global Market Intelligence, commented, "South Korea's manufacturing sector faced a reversal in fortunes during September. The forward-looking picture also looks clouded in uncertainty."
South Korea's economy unexpectedly shrank in the second quarter, registering its sharpest contraction since the fourth quarter of 2022. Officials are now relying on exports to help bolster growth. The survey also revealed that backlogs of work, a near-term activity indicator, fell by the most in five months, while optimism for the year ahead plummeted to its lowest level since December 2022.
Additionally, employment declined the most in 1-1/2 years in September. Samsung Electronics (KS:), the country's tech giant, announced a plan to reduce its overseas workforce by up to 30%, while battery firm SK On introduced voluntary redundancy programs to cut jobs.
On a positive note, inflation in input prices eased to the softest level since August 2023, and output prices fell for the first time in 13 months.
Analysis:
This article highlights the concerning contraction in South Korea's factory activity, signaling a potential economic slowdown. The decline in output and new orders, along with weakening export sales, point towards challenges ahead for the country's economy. The reduction in backlogs of work, declining optimism, and significant job cuts by major companies like Samsung Electronics and SK On further add to the economic uncertainties. However, the easing of inflation in input prices and the fall in output prices could provide some relief. Individuals and investors should closely monitor these developments as they can have implications on South Korea's economic growth, job market, and overall financial stability.