Index shows solid growth in South Korean industrial sector

The HSBC South Korea Purchasing Managers’ Index (PMI) posted 52.5 in October, marginally down from September’s figure of 52.7. Nonetheless, the PMI signaled solid growth of the South Korean manufacturing sector, and extended the sequence of sustained improvement in business conditions to eight months. Despite an easing in the PMI for a third consecutive month, the rate of expansion remained above the historical average for the series.

Incoming new order volumes continued to rise in October, boosted by both domestic and overseas demand. However, the rate at which new orders increased slowed since September. New export orders followed a similar trend, with growth in new business marginal, and markedly lower than August’s five-month high.

The robust improvement in overall new orders led to a further rise in output levels. Growth in production continued to slow from the nineteen-month high recorded in July, although remained comfortably faster than the historical average for the series.

Reflective of the sustained rise in new order volumes and output, employment levels increased during October for the eighth successive month. Reports from South Korean manufacturers indicated that they had implemented initiatives to boost production capacity.

Purchasing activity also increased, and negatively impacted on suppliers’ ability to process higher orders, leading to longer delivery times. Stocks of pre-production inventory were depleted further in order to fulfill output requirements.

Backlogs were reported to have fallen in October for the second month in succession. South Korean manufacturers also depleted stocks of finished goods for the first time since June.

Input prices rose during October, although to a lesser extent than recorded in September. Increased raw material prices continued to impact on manufacturers, although beneficial exchange rates prevented costs from rising further.

Output prices fell modestly during the month, in contrast to September where a marginal rise in charges was reported. Latest data suggested that South Korean manufacturers continued to experience margin pressure.

Commenting on the South Korea Manufacturing PMI survey, Frederic Neumann, senior Asian economist at HSBC, said: “After a strong run over the summer, the Korean economy has started to settle into a more comfortable growth path. The HSBC PMI headline reading remains above 50, even if it has marginally declined in October. Surprisingly, new export orders have fallen back a little over the past month, suggesting that the rebound in external demand has started to slow. Employment, however, remains on an expansion path, limiting risks that consumption could weaken into the year-end after the impact of various fiscal stimulus programs begin to fade. Meanwhile, price pressures, both on the input as well as the output side, appear well contained, allowing the central bank to maintain its accommodative stance for the time being.”