The HSBC South Korea Purchasing Managers’ Index posted 58.2 in February, which was a solid improvement from January’s 55.6. The latest figure was a 26-month high, and signaled a marked strengthening of business conditions within the South Korean manufacturing sector.
Underpinning the sustained improvement in the headline PMI was a substantial rise in incoming new business during February, which was boosted by both improved domestic and overseas demand. The rates at which new export orders and overall new business increased were both the fastest since December 2007.
Reflective of increased new order volumes, production expanded substantially in February, and at the strongest pace in over two years. However, the rate of output growth was not sufficient to prevent a further increase in backlogs of work at South Korean manufacturing companies. The rate at which outstanding business accumulated was broadly unchanged from January’s solid pace.
Employment within the sector increased at the fastest pace since October 2006 during February. This reflected efforts by manufacturers to expand production capacity.
Similarly, purchasing activity rose in line with higher production requirements. The rate at which buying increased was the strongest in over two years. Despite this, pre-production inventories fell, as additional output absorbed higher purchasing volumes. Reflecting increased buying activity, suppliers’ delivery times slowed for a second successive month.
Input prices faced by South Korean manufacturers rose at the fastest pace in 12 months during February, driven by higher raw material prices. The rate at which costs increased was also sharp in the context of historical data. Consequently, output prices rose for a second consecutive month. However, the pace at which manufacturers increased charges was modest, as strong competition prevented a higher rate of increase.
Commenting on the South Korea Manufacturing PMI survey, Frederic Neumann, senior Asian economist at HSBC, said: “South Korea's economy looks set for another quarter of strong sequential growth, with output continuing to accelerate from already very robust levels. Strong gains in new orders, rising backlogs of unfulfilled orders, and rising employment suggest that the current pace of growth will be sustained for the next several months. Remarkably, the strength in economic activity has not fed through into growing output prices. Still, with numbers like these, the authorities may need to exit highly accommodative economic policies earlier than currently anticipated.”
