Korea: Downturn in the manufacturing sector continues in June
July 2, 2018
Business activity contracted in the manufacturing sector for the fourth consecutive month in June, although to a lesser extent than in May, according to the latest survey data. The Nikkei manufacturing Purchasing Managers’ Index (PMI), reported by IHS Markit, ticked up to 49.8 in June from 48.9 in May. Despite the increase, the index remained below the 50-point threshold that signals a contraction over an expansion in the manufacturing sector.
In June, new orders fell for the fourth consecutive month on the back of weaker domestic demand, which more than outweighed increased demand from abroad. Amid fewer new orders, total output was unchanged in June from May and firms were more able to make their way through outstanding orders, clearing backlogs of work. On the labor front, firms cut their number of employees in June. Moreover, some businesses noted that the government’s new policy of reducing maximum working hours from 68 to 52, which came into effect on 1 July, had encouraged voluntary resignations. Despite unchanged output, capacity pressures were evident in June by a lengthening of suppliers’ delivery times compared to the previous month. Meanwhile, on the price front, both input and output prices both increased in June.
In terms of the coming 12 months, manufacturers’ optimism for future business conditions increased in June for the first time since January. New plant openings, stronger demand and new product launches are expected to support the manufacturing sector.
Author: Edward Gardner, Economist