South Korea factory activity shrinks for sixth month in June

Expectations for manufacturing output over the next 12 months also remained pessimistic. PHOTO: AFP

SEOUL (REUTERS) - South Korea's manufacturing activity extended declines in June as the coronavirus impact on global demand persisted, while uncertainty over the future development and economic recovery further weighed on business outlook.

The IHS Markit purchasing managers' index (PMI) ticked up to 43.4 in June from 41.3 in May, but remained far below the 50-mark threshold that separates contraction from expansion for a sixth month, data on Wednesday (July 1) showed.

The headline index reflected slower rates of contraction in major sub-indexes such as output, new orders and export orders but business conditions remained extremely weak in historical terms due to a long-feared resurgence in coronavirus infections.

"While the output and new orders indices have risen from the bottoms seen in April, these increases have been marginal as many companies are operating well below capacity or simply observing no month-to-month improvement in production and new order volumes," IHS Markit economist Joe Hayes said.

Given the country's high dependence on foreign trade - with exports making up 33 per cent of 2019 nominal gross domestic product - a growing number of analysts downgraded their economic projections for South Korea this year, with the International Monetary Fund now seeing a 2.1 per cent contraction.

Businesses were seen cutting staffing levels for a 14th consecutive month in June and at a similar rate seen in May, in response to weak sales and lower operating requirements.

Expectations for manufacturing output over the next 12 months also remained pessimistic, given uncertainty in Covid-19 development and potentially weak recovery.

"Given the cyclical nature of South Korea's export-oriented economy, it appears the chances of a slow recovery from the Covid-19 economic shock are rising," Mr Hayes said.

"Without a sustained pickup in demand, manufacturing output levels will likely remain subdued."

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