South Korea's factory activity shrinks at slowest pace in six months, but virus looms

SEOUL (Reuters) - South Korea’s manufacturing activity shrank at the slowest pace in six months in August as global demand gradually improved after the easing of coronavirus lockdowns, but a resurgence in domestic infections could threaten the recovery.

FILE PHOTO: A worker is seen at a construction site for a financial building in Seoul, South Korea May 11, 2017. REUTERS/Kim Kyung-Hoon

The IHS Markit purchasing managers’ index (PMI) rose to 48.5 in August from 46.9 in July, the highest reading since February, but still below the 50-mark threshold that separates growth from contraction for an eighth straight month.

“August data provides another signal that a turning point has been reached for the South Korea manufacturing sector ... (the reading) pointed to only a modest deterioration in overall business conditions,” said Tim Moore, director at IHS Markit.

More modest declines in key survey sub-indexes such as output, new orders and export orders were reflected in the headline figure. Job shedding also moderated.

The new export orders’ index rose to a seven-month high, with anecdotal evidence highlighting sales to North America returning to growth.

“Subdued global economic conditions due to the COVID-19 pandemic continued to hold back customer spending in August, but there were a number of reports citing a boost to demand from the return to work among clients in the U.S. and Europe,” Moore said.

Meanwhile, a gauge of corporate expectations for manufacturing output over the next 12 months climbed into positive territory for the first time in six months.

However, the findings did not fully reflect a recent resurgence in domestic coronavirus infections in mid- to late-August. The country has seen triple-digit daily jumps for over two weeks.

On Friday, the government extended the current Phase 2 social distancing measures for at least another week, as it reviews deploying the toughest Phase 3, where schools and businesses are urged to close.

That could widen the business fallout from the pandemic, which already pushed Asia’s fourth-largest economy into recession in the second quarter.

The Bank of Korea currently sees the economy contracting 1.3% this year.

Reporting by Joori Roh; Editing by Kim Coghill