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Why South Korean Manufacturing PMI Slipped in May

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Manufacturing activity in South Korea

Manufacturing PMI for South Korea (EWY) fell to 49.2 in May 2017 as compared to 49.4 in April 2017. The manufacturing PMI continues to be below the critical mark of 50, which indicates contraction in the sector. The manufacturing activity experienced a decline due to reduced demand, particularly from external markets. Let’s look at the manufacturing PMI over the last year in the below chart.

 Manufacturing PMI in South Korea Declines in May 2017 2017-06-29

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Manufacturing PMI in May 2017

Manufacturing activity saw its tenth consecutive decline as output dropped the most since November 2016. New orders also contracted for 12 consecutive months as of May 2017. Both new export orders and employment fell at a faster rate in May 2017. Demand from international markets weakened with flat growth in new businesses particularly from China (FXI).

On a positive note, business confidence jumped to a 13-month high in May 2017. The price pressures remained soft as the input cost and output charges both saw a modest drop in May 2017 as compared to last month.

Weaker demand from China

The new orders placed with manufacturers in South Korea fell for 12 consecutive months as exports continued to falter amid weaker sales to China. The recent dramatic deterioration in relations between China (FXI) and South Korea (KORU) has resulted after South Korea deployed its THAAD (Terminal High Altitude Area Defense) system. The THAAD system was deployed with the help of the US to ward off the increasing nuclear threats from Pyongyang, North Korea. Also, South Korea’s increasingly close ties with the US (SPY) (QQQ) are making China uncomfortable. The outcome of President Moon’s recent visit to Washington is still unknown but might escalate tensions between China and South Korea.

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