October 1, 2018 / 12:48 AM / in 19 days

South Korea's factory activity rebounds, fastest growth in five-and-a-half years

SINGAPORE (Reuters) - South Korean factory activity expanded for the first time in seven months in September, as output recovered from a slump and new orders picked up pace even though export sales contracted for the second month, a private survey showed on Monday.

Hyundai Motor's sedans are assembled at a factory of the carmaker in Asan, about 100 km (62 miles) south of Seoul, January 22, 2013. REUTERS/Lee Jae-Won/File Photo

The headline Nikkei/Markit purchasing managers’ index (PMI) rose to 51.3, and growing at the fastest clip in almost 5-1/2 years.

It was the first time since March that the index went above the 50-point level that separates growth from contraction.

The bounce was underpinned by output increasing at the fastest pace in 10 months at 51.7, recovering from 49.7 in August, supported by a pick up in new orders even though demand was largely domestically driven.

“Amid a backdrop of intensifying trade tensions, South Korea’s manufacturing sector showed a level of resilience during September’s survey period,” said Joe Hayes, an economist at IHS Markit.

The job creation rate at 52.3 was also a welcome positive in the survey, growing at the strongest rate since May 2013, “as firms continue to adjust to the various labor market reforms introduced at the beginning of the year,” Hayes said.

The pick up in production levels, and greater R&D needs, helped boost payroll numbers, taking some of the sting off the deepening concerns over the country’s worst jobless figures since the financial crisis.

Under the slogan of “income-led growth,” the South Korean government sharply hiked minimum wages and cut working hours from 68 to 52, a policy that has drawn sharp criticism from employers.

One sign of potential stress for the economy was the survey’s measure of export sales, which contracted for the second month in a row, pressured by fewer orders from Japan and China amid a backdrop of escalating global trade tensions.

“Expectations of slower global growth weighed on business sentiment,” said Hayes.

Official data has shown brisk South Korean exports thanks to consistent demands from China, but policymakers worry the heated Sino-U.S. trade friction could drag on Asia’s fourth largest economy.

The survey also showed South Korean manufacturers facing input cost pressure in September, led by rising raw material costs and an unfavorable exchange rate.

(The story is refiled to remove extra words in second paragraph.)

Reporting by Hayoung Choi; Editing by Shri Navaratnam; hayoung.choi@thomsonreuters.com; +82 2 3704 5643

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