Korea: Manufacturing PMI signals expansion in the sector for the first time since July 2016
July 1, 2017
Korea’s manufacturing economy crawled back into expansionary territory in June. The Nikkei manufacturing Purchasing Managers’ Index (PMI) reported by IHS Markit rose from 49.2 in May to 50.1 in June, reaching an 11-month high. As a result, the reading is now above the crucial 50-point mark that separates economic expansion from contraction, where it had last been in July 2016.
The PMI report showed improved operating conditions among Korean manufacturers despite dwindling Chinese demand, which has weighed in recent months on manufactured exports growth. In fact, June’ report showed the first month of expansion in overall new work since May of last year, suggesting that the drop in external demand has been offset by increased domestic demand. Nonetheless, production volumes decreased yet again in June. Growth in new orders and lower output volumes saw an increase in backlogs of work for the first time since February 2015, and the speed at which these accumulated was the quickest since April 2011. New orders growth also prompted firms to expand their purchasing activities, but staffing levels continued to dwindle. Regarding prices, there was little change in the input front, while output prices decreased for a second consecutive month as firms continued to face fierce competition.
On June’s report, Paul Smith, Senior Economist at IHS Markit, commented:
“Whilst hinting of potentially brighter times to come, the latest data nonetheless remain consistent with ongoing stagnation of industrial production. Moreover, there remain some headwinds to growth emanating from the direction of China. Ongoing diplomatic tensions continue to undermine bilateral trade relations between the two nations, leading to further falls in new export orders to South Korea’s manufacturers.”
Author: David Ampudia, Economist