S.Korea factory activity contracts in March as weak domestic demand drags, PMI shows

By Jihoon Lee

SEOUL (Reuters) – South Korea’s manufacturing activity weakened in March as slowing domestic demand offset robust overseas sales, a private-sector survey showed on Monday.

The purchasing managers index (PMI) for manufacturers in Asia’s fourth-largest economy, compiled by S&P Global, stood at 49.8 in Marchon a seasonally adjusted basis, down from 50.7 in February.

The fall below the 50-mark, which separates expansion from contraction, was the first in three months, with sub-indexes for output and new orders slipping to 49.8 and 49.9, respectively.

“March PMI data signalled that South Korea’s manufacturing sector saw a renewed deterioration in operating conditions. Both output and new order volumes declined, as firms mentioned that weak demand and a muted domestic economy held back production and sales,” said Usamah Bhatti, economist at S&P Global Market Intelligence.

“One bright light, however, was that export demand rose for the third month in a row and at a stronger rate.”

The survey showed export orders grew in Southeast Asia, North America and Japan. The findings align with official data on South Korea’s overall exports, which have risen since October thanks to chip-led demand.

However, domestic demand has been weakening due to interest rates staying at elevated levels for a prolonged period, raising some concerns about the pace of economic recovery.

Manufacturers’ stocks of finished goods and input purchases fell by the sharpest rate since December 2021 and April 2020, respectively, driven by firms’ efforts to reduce inventory levels to save costs.

Still, South Korean manufacturers turned more optimistic for the year ahead on hopes for a sustained improvement in demand, particularly in the semiconductor and automotive sectors, alongside a broader economic recovery.

(Reporting by Jihoon Lee. Editing by Shri Navaratnam)

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