July 1, 2019 / 1:01 AM / 3 months ago

South Korea June factory activity shrinks, export orders in longest slump on record

SEOUL, (Reuters) - South Korea’s factory activity shrank at the fastest pace in four months in June as the global trade slowdown deepened, prompting companies to cut back production and shed more jobs, a business survey showed on Monday.

A factory is seen in Incheon, South Korea, May 30, 2016. REUTERS/Kim Hong-Ji/File Photo

New export orders contracted for the 11th straight month, the longest decline on record, which will likely add to pressure on the central bank to cut interest rates soon to reduce the risks of a recession.

The Nikkei/Markit purchasing managers’ index (PMI) fell to 47.5, from 48.4 in May, marking the seventh decline in the past eight months.

The headline index dropped further below the 50-point level that separates growth from contraction, with major sub-indexes extending their weakness.

Total new orders from at home and abroad contracted for an eighth consecutive month, led by cooling demand from the key auto and electronics sectors. Fallout from the U.S.-China trade war was cited as a major factor, but export orders from all parts of the world were reported to be lower.

“Panellists reported that (the global trade slowdown) is taking its toll on their businesses, weighing on demand for goods and subsequently leading to cuts in production,” said Joe Hayes, an economist at IHS Markit.

Facing weak demand, factories lowered the prices of their goods and hit the brakes, cutting output at the sharpest rate in four years. Job losses continued for a second month.

Worried that the Sino-U.S. trade dispute will drag on, South Korean manufacturers were only slightly optimistic of a pick-up in production in the next 12 months, the survey showed.

“Manufacturers remain fairly subdued about the future, with even the prospect of new product lines failing to lift their spirits,” Hayes said.

South Korea’s economy contracted by a seasonally adjusted 0.4% in the January-March period from the previous quarter.

Reporting by Joori Roh; Editing by Kim Coghill

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