South Korea October factory activity shrinks for sixth month as new export orders return to contraction - PMI

SEOUL (Reuters) - South Korea’s factory activity contracted for the sixth straight month in October but at a slightly slower pace, a private business survey showed on Friday, as cooling global demand and trade tensions continued to weigh on the export-reliant economy.

The Nikkei/Markit purchasing managers’ index (PMI) inched up to 48.4 at the beginning of the final quarter, from 48.0 in September, but remained well below the 50-point level that separates contraction from growth on a monthly basis.

Total new orders shrank at a more modest pace, but new export orders slipped back into contraction after expanding the previous month. Survey panellists reported weaker sales to Japan, China, Taiwan and Europe.

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The sub-index for new export orders marked its 14th decline in the past 15 months.

“The slump in exports remains the true Achilles’ heel, however, with headwinds coming from all directions. As well as U.S.-Sino trade frictions, tensions with Japan and a stagnating European economy have significantly dented order book volumes at South Korean manufacturers,” said Joe Hayes, economist at IHS Markit.

Despite increased operating costs, companies lowered output prices to boost demand and improve competitiveness, and reduced staffing levels for the sixth month in a row.

“Firms are trying to bolster sales by reducing prices, although so far this has been to little benefit. A weak outlook and deflationary risks open the door for further policy easing,” Hayes added.

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In October, the Bank of Korea cut its policy interest rate for the second time in three months to a record low of 1.25% to support the faltering economy, and left the door open to further easing.

While the majority of PMI sub-indexes pointed to further weakness in the economy, Asia’s fourth-largest, businesses expressed optimism of a pick-up in production in the next 12 months, the survey also showed.

The future output index rose to 54.9 in October, the best reading since June 2018 and up from 52.0 in September, backed by expectations of new product launches in electronics and automobiles industries.

But the figure remained relatively subdued by historical comparison, suggesting it is too soon to expect an immediate recovery.

South Korea’s economy slowed more than expected in the third quarter, growing 0.4% from the previous quarter.

(Reporting by Joori Roh; Editing by Kim Coghill)

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