S.Korea factory activity shrinks sharply as overseas demand weakens, PMI shows

By Jihoon Lee

SEOUL (Reuters) - South Korea's factory activity contracted at the sharpest pace in 15 months in September as overseas demand slowed for the first time in the year, a private survey showed on Wednesday, suggesting a slow road to a full-blown economic recovery.

The purchasing managers index (PMI) for manufacturers in Asia's fourth-largest economy, compiled by S&P Global, stood at 48.3 in September on a seasonally adjusted basis, down from 51.9 in August.

The index fell below the 50-mark, which separates expansion from contraction, for the first time in five months and registered the lowest reading since June 2023.

Output and new orders shrank in September, after gaining for five straight months, with the steepest slump in 11 months and 15 months, respectively.

While sluggish domestic demand was cited in the survey as a main factor behind the fall in orders, new export business also posted their first fall of the year.

Specifically, export sales to China, Japan, India and the United States weakened, according to the survey.

"South Korea's manufacturing sector faced a reversal in fortunes during September. The forward-looking picture also looks clouded in uncertainty," said Usamah Bhatti, economist at S&P Global Market Intelligence.

South Korea's economy unexpectedly shrank in the second quarter, logging its sharpest contraction since the fourth quarter of 2022, and officials are counting on exports to help shore up growth.

The survey showed backlogs of work, an indicator of near-term activity, fell by the most in five months, while optimism for the year ahead weakened sharply to the lowest level since December 2022.

Employment also declined by the most in 1-1/2 years. In September, Samsung Electronics, the country's tech giant, decided to reduce its overseas workforce by up to 30%, and battery firm SK On announced a plan for voluntary redundancy programmes aimed at cutting jobs.

On a brighter note, inflation in input prices eased to the softest since August 2023, while output prices fell for the first time in 13 months as well.

(Reporting by Jihoon Lee; Editing by Shri Navaratnam)