South Korean factory activities accelerate but output and export orders shrink

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© Reuters. File photo: Hyundai Motor’s sedan was assembled on January 22, 2013 at an automobile manufacturer’s factory in Asan, about 100 kilometers (62 miles) south of Seoul.REUTERS/Lee Jae-Won/File Photo

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SEOUL (Reuters)-South Korean factory activities expanded in December at the fastest rate in three months. However, due to the increase in global coronavirus cases and continued tight supply pressure on production and overseas demand, the South Korean economy has struggled to regain momentum .

The IHS Markit Purchasing Managers Index (PMI) in the last month of this year rose from 50.9 in November to 51.9, staying above the 50 threshold, indicating that activity has expanded for the 15th consecutive month.

Monday’s survey showed that due to supply chain constraints, production continues to shrink, companies are facing shortages of semiconductor chips and weak demand, but the growth rate is the mildest in three months.

As domestic demand conditions improved, offsetting the impact of weak overseas sales, new orders — the most weighted in the purchasing managers’ index — grew faster.

Joe Hayes, senior economist at IHS Markit, said: “Survey data shows that new export orders have fallen for the first time since September 2020. The company attributes this to the increase in global COVID-19 cases, port congestion and Lack of usable containers.”

Manufacturers continue to face severe cost pressures, especially in terms of oil, ore and electronic product prices, which has caused them to pass on higher costs to customers.

However, with the improvement of global economic conditions and the hope for new product development, companies are optimistic that the pressure on the supply chain will ease in the coming year.

After two consecutive months of layoffs, this led to an increase in the number of recruits and the growth rate accelerated to a six-month high.

However, economists said that the supply shortage needs to show a significant improvement in the manufacturing industry to achieve a steady improvement.

“Given South Korea’s prominent position in the automotive and electronics industries, the global supply chain needs to be substantially improved before we see a significant acceleration in manufacturing growth,” Hayes said.

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