South Korea’s manufacturing sector experienced a deepening downturn in June as factory activity contracted for the 12th consecutive month, according to the latest report from S&P Global. The purchasing managers’ index (PMI) for South Korean manufacturers plummeted to 47.8, reaching its lowest level in three months.
Worryingly, this decline has persisted since July 2022 when the PMI first dipped below the critical threshold of 50, which indicates contraction in the sector. Remarkably, this marks the longest continuous period of contraction since the PMI survey began in April 2004.
The most significant contributing factors to the slump in the aggregate PMI were sharp declines in both output and new orders, falling to their lowest levels in eight and six months, respectively. Particularly, key export markets in Asia and Europe showed lackluster demand, resulting in a sharp decline in new export orders.
Despite some improvements in inflation and supply chain factors, the South Korean economy has struggled to find its footing, primarily due to sluggish external demand. This prolonged contraction has raised concerns among economists, who fear a protracted economic downturn if conditions do not improve soon.
Manufacturers’ confidence in future output further dampened in June, reaching its lowest level since December 2022, following a brief uptick in May when it reached a 10-month high. This decline in confidence signals a lack of optimism among manufacturers regarding the prospects of a swift recovery.
The South Korean government and business leaders are closely monitoring the situation and exploring measures to revitalize the manufacturing sector. However, with external demand remaining tepid and uncertainty surrounding global economic conditions, the road to recovery may prove challenging.
As the manufacturing sector remains subdued, policymakers and industry players are acutely aware of the need for strategic interventions to stimulate growth. The South Korean government might need to consider measures to enhance competitiveness, diversify export markets, and bolster domestic demand to address the prolonged contraction in the manufacturing sector.