Korea: Business conditions deteriorate sharply in November
December 3, 2018
The manufacturing Purchasing Managers’ Index (PMI), produced by Nikkei and reported by IHS Markit, fell from 51.0 in October to 48.6 in November. The PMI therefore fell below the crucial 50-point threshold separating contraction from expansion in the manufacturing sector.
The index reading in November reflected a marked deterioration in total new sales, particularly in the automobile industry, and new export orders. Corresponding with this was a drop in future output expectations, which fell to their weakest level since August 2016. Weaker optimism pushed some companies to reduce stock levels, with inventories of both pre- and post-production stocks declining in November, while the quantity of input purchases was the same as in October. Meanwhile, outstanding work was partly cleared in November, despite a fractional reduction in companies’ headcounts. In terms of prices, input cost inflation increased at an accelerated rate in November, partly due to higher commodity prices and labor costs. Output charges were raised in response.
Commenting on the index reading in November, Joe Hayes of IHS Markit said: “PMI data for November provided further evidence that weaker global growth is harming South Korean exporters. According to the latest survey, manufacturing exports fell at the sharpest rate in over five years. Soft demand was also apparent domestically, as total new orders fell markedly.” He concluded, “growth prospects for Q4 seem firmly tilted to the downside.”
Author: Edward Gardner, Economist