Korea: Business conditions deteriorate to an over two-year low in January and optimism falls
February 1, 2019
The manufacturing Purchasing Managers’ Index (PMI), produced by Nikkei and reported by IHS Markit, fell from 49.8 in December to 48.3 in January, which represents an over two-year low. The PMI reading was therefore below the crucial 50-point threshold separating contraction from expansion in the manufacturing sector for the third month running.
The result in January was primarily due to reduced new orders, as weakness in the domestic economy was compounded by fewer exports, particularly to China, Japan and Germany—total new export orders decreased for the sixth month in a row. Production fell in January at the fastest pace since July, despite a partial clearing of backlogs of work. Meanwhile, stocks of manufactured goods rose in January as a result of unsold product. Against this backdrop, firms cut headcounts in January. In terms of prices, purchasing prices fell for the first time in 18 months in January due to lower oil, metal and chemical costs. In line with cheaper input costs, selling prices were cut in January as part of company efforts to support limp demand. Looking ahead, manufacturers were slightly upbeat on future output prospects in January, although optimism fell to the lowest on record in the month amid forecasts of a domestic economic slowdown, weak external trade prospects and rising labor costs following the minimum wage hikes this year and last year.
Piecing the latest PMI into the bigger picture, Joe Hayes, economist at IHS Markit, commented: “In the current climate, President Moon’s economic reforms and ambitious stimulus policies will be acting to offset business cycle effects as opposed to complementing them.”
Author: Edward Gardner, Economist