S. Korea Production Falls at Fastest Rate in 8 Months

September 04, 2012 /

South Korean manufacturing output has contracted at the fastest pace in eight months amid reports of a strike in the auto sector, according to a banking giant.

HSBC survey respondents stated that the global recession had adversely affected production. Total new business fell and, although sharp, the rate of contraction was slower than in July. New export business also decreased, though at a slight rate. Panellists stated that weaker domestic demand and a downturn in the global economy had both fed through to the latest contraction in order book volumes.

Ronald Man, Economist at HSBC in Asia said: “Demand from home and abroad continues to contract, prompting local firms to reduce output further.”

Staffing levels at manufacturing firms in South Korea increased during August. However, the pace of expansion was only slight and the index posted below its long-run average. According to respondents, workforces were increased as manufacturers forecast an improvement in the wider economy over the upcoming year.

With employment expanding and demand weakening, backlogs of work were depleted at a sharp rate. Almost a fifth of the surveyed panel reported lower volumes of work-in-hand (but not yet completed).

Stocks of finished goods in the South Korean goodsproducing sector decreased during August. Preproduction inventories also fell, and at a faster pace than post-production inventories. Stocks of purchases had fallen in each of the past four months.

Purchasing activity at manufacturing firms in South Korea decreased for the third successive month in August. The rate of contraction was solid, but eased from that recorded in July. Meanwhile, average lead times lengthened in the latest month, marking a fourmonth sequence of deterioration in vendor performance.

That said, the rate of increase remained slight. Manufacturing companies in South Korea signalled no change in input costs during August, as 91% of the surveyed panel reported constant input prices. On the other hand, output prices decreased for the tenth successive month.

Man said: “With the Chinese economy yet to show signs of a meaningful recovery, policymakers in Korea need to support domestic demand as trade levels remain suppressed. We expect the Bank of Korea to deliver one more 25bp rate cut in September.”


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