Virus jolts S Korea's factory activity, exports shrink to 6.5-year low
[SEOUL] South Korea's factory activity shrank faster in February, as export orders contracted at the quickest pace in over six years in a shattering blow to production, a private survey showed on Monday, as the coronavirus chilled global demand and business activity.
The Nikkei/Markit purchasing managers' index (PMI) fell to 48.7 in February, from 49.8 in January, and stayed below the 50-point level that separates growth from contraction in nine of the past 10 months.
New export orders suffered their worst decline since August 2013, as the rapidly spreading virus wreaked havoc along global supply chains, with strict travel and other containment measures in China disrupting factory production and business operations in China and the rest of the world.
Factory output in South Korea was also hit hard, with the gauge tumbling to 44.4, from 50.1 in January, marking the sharpest decline in nearly five years.
"Unsurprisingly, the South Korean manufacturing sector was hit by a dual-pronged negative shock to the demand- and supply-side of the economy in February amid the Covid-19 outbreak," IHS Markit economist Joe Hayes said. The epidemic, which originated in China, has claimed the lives of nearly 3,000 and roiled global financial markets as investors and policymakers braced for a potentially steep knock to world growth.
Most of the deaths were in China, but fatalities have also been recorded in several countries, including South Korea, Japan, Italy, France and Iran. Fears have swept across South Korea as confirmed infections spiked from 31 to over 3,700 in less than two weeks as of Sunday.
GET BT IN YOUR INBOX DAILY
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Anecdotal evidences showed the epidemic could extract a heavy toll on the auto industry. Major exporting companies including Hyundai Motor and Samsung Electronics have partially shut down their production lines after workers tested positive, while LG Display has also shut a display module plant for disinfection work until Tuesday.
Total new orders returned to contraction after expanding for two months in a row, the survey showed, but the rate of decline was modest as reduced availability of Chinese goods created favourable conditions for local businesses.
"The concern for South Korea will be how hard this is going to hit exports," Mr Hayes said, adding domestic replacement of Chinese imports have partially negated drag in overseas demand.
A few data releases including February exports underlined the negative impact from the virus, with shipments per working day plunging, but markets fear the worst is yet to come.
South Korea's central bank kept interest rates unchanged on Thursday, but analysts say it won't be able to hold out for too long as policymakers acknowledged the threat from a prolonged virus outbreak.
While sentiment held up in the PMI survey, a separate central bank survey showed business sentiment suffered the worst fall in nearly 17 years, even without fully reflecting fears over the recent spike in national infections.
"Even if demand does recover, day-to-day operations are likely to suffer ... until normality across supply chains is restored," Mr Hayes said.
REUTERS
KEYWORDS IN THIS ARTICLE
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
International
Vietnam National Assembly head resigns amid graft purge
China central bank flags bond investment risks to some financial institutions: sources
Xi tells Blinken US, China should be 'partners, not rivals'
Indonesia’s push for regional economic integration to continue under Prabowo: Vivian Balakrishnan
Outgoing Singapore, Indonesia leaders to hold their final retreat in Bogor on Apr 29
Beijing city to subsidise domestic AI chips, targets self-reliance by 2027