South Korea’s Manufacturing Sector Hits a Speed Bump
Uncertainty Reigns as Factory Activity Contracts
South Korea’s manufacturing sector took a hit in December, with a private sector survey revealing a contraction in factory activity for the third time since August. The purchasing managers index (PMI) slipped below the 50-mark, indicating a shift from expansion to contraction.
Pessimism Sets In
Manufacturers’ sentiment turned pessimistic for the first time since mid-2020, driven by uncertainty surrounding U.S. trade policy and domestic politics. The decline in demand was attributed to weaker client confidence in the domestic market, while export orders saw only marginal growth.
Output Shrinks for Fourth Consecutive Month
The survey showed that output shrank for the fourth consecutive month, with a steeper decline than the previous month. New orders also fell, contributing to the overall contraction.
Gloom Ahead
Manufacturers’ sentiment for the year ahead fell below the 50-threshold, marking the lowest level in 4-1/2 years. Excluding the COVID-19 pandemic period, it was the worst since the data series began in April 2012.
Domestic Politics Take a Toll
The recent impeachment of South Korean President Yoon Suk Yeol and the imposition of short-lived martial law on December 3 raised political uncertainty, dampening consumer and business confidence.
Global Trade Concerns
Firms cited concerns over domestic economic conditions and potential U.S. protectionist policies as major contributors to their downbeat expectations. The impact of U.S. tariffs on Canada, Mexico, and China is expected to affect South Korean firms operating in these countries.
A Glimmer of Hope
While overseas demand weakness in China and the United States was a concern, firms noted improvements in Europe and some parts of the Asia-Pacific region.
Economic Growth Slows
The trade-reliant South Korean economy barely grew in the third quarter, and export growth is expected to slow to 1.5% in 2025, down from 6.3% in 2024, according to the central bank.
A Challenging Road Ahead
As South Korea navigates these challenges, it remains to be seen how the manufacturing sector will respond to the shifting global trade landscape and domestic political uncertainty. One thing is clear: the road ahead will be fraught with challenges.
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