June 1, 2017 / 1:19 AM / 3 months ago

South Korea May factory activity shrinks for 10th month, China demand a worry - PMI

SEOUL (Reuters) - South Korea's factory activity shrank for a 10th straight month in May as output, new orders and employment fell further, a private business survey showed on Thursday.

The survey attributed the softening to persistently weak demand, particularly from the country's major global markets, though official data have shown exports surging for six straight months.

The Nikkei/Markit purchasing managers' index (PMI) on South Korea's manufacturing sector edged down to 49.2 in May on a seasonally adjusted basis from 49.4 in April, IHS Markit said in a statement.

The 50-mark separates contraction from expansion on a monthly basis.

May output fell at the fastest rate since November 2016, with the sub-index at 47.7 versus 49.0 in April, the survey showed. New export orders contracted for the fourth month in a row, with demand from China reported to be weakening.

"Political tensions around THAAD continued to undermine new export business with China, according to panelists," Nikkei/Markit said in the statement, referring to Beijing's opposition to South Korea's decision to install a U.S.-designed anti-missile system to counter North Korea.

While the health of export demand differs markedly between the survey and actual data, Statistics Korea said on Wednesday that industrial output did fall unexpectedly in April from March even as exports rose.

That added an element of uncertainty for the Bank of Korea, which plans in July to upgrade the economic growth outlook for this year from the current 2.6 percent.

Both the survey and official readings did agree that there has been a noticable improvement in business confidence. Panelists said they expected a pick-up in new orders from at home and abroad and cited planned new product launches.

Separately, South Korea's central bank survey on local manufacturers also showed more optimism for future business conditions, with the June business survey index rising to more than three-year high.

(Reporting by Dahee Kim; Editing by Kim Coghill)

Dahee.Kim@thomsonreuters.com; +82 2 3704 5643; Reuters Messaging: dahee.kim@thomsonreuters.com

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