South Korea’s Manufacturing Activity Expanded In December: HSBC PMI

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Won Notes
Fifty-thousand-won notes are piled up after being counted at a bank in Seoul.

South Korea’s manufacturing activity expanded in December to end six months of contraction, according to the HSBC Purchasing Managers’ Index (PMI), released Wednesday.

The reading of the PMI, a measure of the country's nationwide manufacturing activity, rose to 50.1 in December compared with 48.2 in November. “The first improvement in Korean manufacturing conditions since May indicates that Korea is poised for a recovery next year. New orders have increased, lifting production and employment. We believe the upward momentum can be sustained at a gradual, but meaningful, pace on the back of stronger external demand. As such, this will reduce the pressure on the Bank of Korea to deliver further monetary easing,” Ronald Man, Economist at HSBC in Asia, said in a note.

Significantly, the index returned to the expansion zone, namely, any reading above 50. The expansion of the manufacturing activity should allay fears about a sharp retardation of the South Korean economy. However analysts have concerns about the economy's momentum.  “Following six months of continuous decline, new order volumes increased in the latest survey period. However, the rate of growth was only slight, with respondents commenting that underlying demand conditions remained fragile and economic conditions weak,” Markit said in a note.

This report comes after it was revealed on Tuesday that South Korea’s trade surplus fell in December compared with previous month, indicating that soft global demand continues to weigh on the economic growth of the country. According to data released Tuesday by the Korea National Statistical Office, the country’s trade surplus, which measures the difference in value between exported and imported goods and services over the reported period, dropped to $2.03 billion in December, from $4.38 billion in November.

Earlier this week, it was reported that South Korea's consumer price inflation index rose in December at a slower rate than expected, indicating that the country’s inflationary pressures are declining, providing room for further monetary easing policy measures that will likely be required to boost economic growth. According to data released Monday by the Korea National Statistical Office, the country’s CPI, or consumer price index, which measures the change in the price of goods and services from the perspective of the consumer, rose 1.4 percent in December, down from a 1.6 percent increase in November and below analysts’ forecasts of 1.5 percent. 

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