South Korea's factories hit 4-year stride in March but inflation clouds outlook

A surging output and jobs revival mark its strongest quarter-end in years.

South Korea's manufacturing sector closed the first quarter of 2026 at its strongest pace in over four years, as output, new orders, and employment all expanded — though rapidly rising costs are testing the resilience of the recovery.

The seasonally adjusted S&P Global South Korea Manufacturing Purchasing Managers' Index rose to 52.6 in March, up from 51.1 in February, with the rate of improvement the best registered in just over four years. Any reading above 50 signals expansion.

Production volumes climbed at the steepest rate since August 2024, with manufacturers citing rising new order intakes — notably for new products and semiconductors — as the engine of growth. Total new orders rose for the fourth consecutive month, supported by stronger domestic demand and new client wins.

Foreign demand also improved, though only marginally, as firms flagged the impact of the war in the Middle East and exchange rate fluctuations as headwinds to export growth.

The hiring picture brightened after a brief lull. Staffing levels rose in March for the first time in three months, reaching a six-month high in the rate of job creation, as companies moved to take on full-time staff to meet increased production and capacity requirements.

The shadow over the otherwise upbeat data is cost inflation. Input prices rose to the greatest extent since June 2022, driven by higher raw material costs, unfavourable exchange rate movements, and elevated oil prices linked to the Middle East conflict. Faced with mounting cost burdens, manufacturers raised their output charges at the steepest rate since July 2022 in an attempt to protect margins.

Supply chains also came under fresh strain. Average supplier lead times lengthened to the greatest extent in 39 months, partly due to delivery delays caused by the Middle East conflict, prompting firms to build up safety stocks for the first time in five months.

S&P Global Market Intelligence economist Usamah Bhatti said the results were encouraging but carried a clear warning. "Positive signals were dampened by evidence of accelerating cost pressures across the goods-producing sector. Firms looked to protect against higher costs by raising prices charged at the steepest rate since July 2022, while also attempting to build safety stocks to guard against future price and supply issues," he said.

Business confidence for the year ahead remained positive, though optimism eased to a four-month low, with firms pinning their hopes on new client wins, new product launches, and an eventual easing of geopolitical tensions.