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UPDATE 1-S.Korea March factory activity shrinks again, heaviest job cuts since 2008-PMI
April 3, 2017 / 4:35 AM / 8 months ago

UPDATE 1-S.Korea March factory activity shrinks again, heaviest job cuts since 2008-PMI

(Adds more details, analyst comment)

* S.Korea March factory activity contracts at faster pace

* March PMI at 48.4 vs 49.2 in Feb

* Manufacturers slash jobs amid corporate restructuring

* Weak export orders conflict with strong trade data

* Trend bucks signs of improvement elsewhere in Asia, globally

By Christine Kim

SEOUL, April 3 (Reuters) - South Korea’s manufacturing activity contracted for an eighth straight month in March, prompting factory owners to cut jobs at the fastest pace since the global financial crisis, a private-sector survey showed on Monday.

The findings, if confirmed by economic data, could suggest further risks to an already sluggish recovery in Asia’s fourth-largest economy, which is heavily reliant on exports and facing stubbornly weak domestic demand.

The Nikkei/Markit purchasing managers’ index (PMI) on South Korea’s manufacturing sector slipped to 48.4 in March on a seasonally adjusted basis from 49.2 in February, data from IHS Market showed.

A reading below 50 indicates activity during the surveyed month contracted from the previous month, while levels above 50 point to expansion.

The March reading showed the sharpest contraction since November last year, when the PMI stood at 48.0.

Factory output and new orders also shrank at a faster pace than in February.

“A further and stronger recovery in exports is needed to reduce inventories and encourage manufacturers to expand output ahead,” said economists at DBS Bank in a research note.

“An immediate recovery should be unlikely, given that the possible stimulus measures will only arrive in the second half of this year after the election is completed and a new government takes office.”

South Korea will elect a new president on May 9 after ex-leader Park Geun-hye was ousted last month over an influence-peddling scandal.

With business conditions still deteriorating, manufacturers slashed jobs by the most since late 2008, the survey showed.

That may bode ill for March job data slated for early next week. The unemployment rate rose to a one-year high of 4.0 percent in February in seasonally adjusted terms.

South Korea is restructuring its shipping and shipbuilding industries and thousands of jobs are expected to be lost during the process that started last year.

Offsetting some of the gloom, the index for new export orders rose to 49.1 for March from 48.9 in February -- still contracting but at a more moderate pace as global demand picks up.

Some respondents said sales to China, South Korea’s biggest trade partner, had suffered in the face of political tensions after Seoul’s decision to deploy a U.S. anti-missile system.

Despite weak demand, however, the survey showed some companies were able to rebuild profit margins by raising prices of their goods.

The weak export order reading in the survey contrasted with official data on Saturday that showed March exports grew more than expected despite souring relations with China. (Reporting by Christine Kim; Editing by Kim Coghill)

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