S. Korean Manufacturing Fell in July

August 01, 2012 /

Production fell solidly at manufacturing firms in South Korea during July. The pace of contraction was the
fastest recorded since December 2011. Panellists attributed lower production to the global economic slowdown.

New orders declined at the fastest pace since December 2011. Moreover, new export business decreased for the second successive month amid reports of a downturn in the international economic climate. In line with falling new order volumes, backlogs of work dropped during July. Data signalled that the latest contraction was the quickest since the survey started in April 2004.

Prices charged by South Korean manufacturers fell modestly in July. Output prices have fallen in each of
the past nine months, and the rate of decline in July was the fastest since April 2009. Manufacturers
reportedly reduced factory gate prices in line with decreasing prices for raw materials.

Meanwhile, input prices fell solidly and for the second successive month. According to manufacturers, prices
had fallen as a result of negotiations with suppliers.

Post-production inventories were accumulated slightly, with the index posting just above the no-change
benchmark of 50.0. That said, this was the first accumulation of stocks of finished goods since February.
In contrast, pre-production inventories were intentionally depleted in an attempt to reduce storage costs, it was reported.

Workforces at manufacturing firms in South Korea fell during July. The latest data adjusted for seasonal
factors pointed to the first contraction in employment since February, albeit at a marginal rate. Firms reported that, following resignations, no new recruitment had been carried out as the global economy continued to deteriorate.

Average lead times increased slightly at manufacturers in South Korea, extending the current lengthening
period to three months.

Ronald Man, Economist at HSBC in Asia said: “Weak economic conditions forced a sharp contraction in new orders for Korean goods. In turn, further deterioration in Korea’s manufacturing sector calls for more support from policy makers.

“On the monetary front, we expect the Bank of Korea to deliver one more 25bp policy rate cut this quarter. On the fiscal front, greater government spending should be allocated towards sustaining employment growth, especially in light of the recent slowdown in household consumption.”


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