Korea: The manufacturing sector remains in the doldrums in June
July 1, 2019
The Nikkei and IHS Markit manufacturing Purchasing Managers’ Index (PMI) dropped to a four-month low of 47.5 in June from 48.4 in May, falling further below the threshold that separates expansion from contraction in the manufacturing sector. June’s decline marks the seventh deterioration in business conditions in the last eight months.
The deterioration in June came on the back of faltering demand and producers’ prompt reduction in output, which fell at the sharpest rate in the survey’s four-year history. The global trade slowdown and U.S.-China trade war continued to hamper new business, as reflected in the 11th successive drop in export sales, with the automotive and electronic sectors particularly hard-hit by subdued demand. Subsequently, manufacturers continued to cut jobs and despite lower staff levels were able to work though back logs of work at a marked rate. Moreover, firms scaled back purchasing activity to a three-year low in light of lower output requirements, while supplier delivery times were little changed in June.
In terms of prices, manufacturers lowered output prices as incentive to draw new business, and despite higher input costs due to higher chemical prices and a weaker Korean won. Finally, businesses remained pessimistic in June.
Commenting on the drearier outlook for the manufacturing sector, Paul Smith, IHS Markit economics director, commented: "There are real concerns that global growth will continue to soften in the coming months amid ongoing tensions between China and the US over tariffs and trade. Manufacturers subsequently remain fairly subdued about the future, with even the prospect of new product lines failing to lift their spirits.”
Author: Lindsey Ice, Economist