Factory activity in South Korea shrinks in April, but optimism about prospects increases

By Jihoon Lee

SEOUL (Reuters) – South Korea’s industrial activity contracted again in April, but manufacturers’ optimism rose to the highest level in nearly two years as production and orders managed to register marginal growth, a survey showed from the private sector this Thursday.

The purchasing managers’ index (PMI) of manufacturers in Asia’s fourth largest economy, compiled by S&P Global, fell to 49.4 in April, from 49.8 in March, on a seasonally adjusted basis.

It was the second month in which the index fell below the 50 mark, which separates expansion from contraction, and the lowest reading since August 2023.

“Although production and new orders returned to fractional growth territory, the headline PMI was pressured by falling employment and purchasing inventories,” said Usamah Bhatti, economist at S&P Global Market Intelligence.

“The drop in employment, backlogs and stocks suggest the sector still has a long way to go before growth can be sustained.”

The South Korean economy grew at the fastest pace in more than two years in the first quarter, data showed last week, beating all estimates due to a recovery in domestic consumption and robust exports.

In the manufacturing survey, the production and new orders sub-indices rose in April to 50.1 and 50.3, respectively, after falling below 50 in March for the first time in three months.

New export orders grew for the fourth consecutive month in April, driven by strong demand from mainland China and the broader Asia-Pacific region, but the pace was slightly slower than the previous month, the survey showed.

On a negative note, employment fell in April, after 11 months of increases, while inflation in input and output prices was the sharpest since November.

Even so, manufacturers’ optimism for next year was at its highest since May 2022, as companies expected a sustained recovery in domestic and export orders, helped by new product launches and lower interest rates. .

(Reporting by Jihoon Lee; Editing by Shri Navaratnam)