South Korea factory activity contracts in December

Production outlook turned negative for the first time since the pandemic.

South Korea's manufacturing activity fell to 49.0 in December from the previous month's 50.6, indicating a renewed deterioration in the health of the country's manufacturing sector.

The production outlook in South Korea turned negative in December 2024 for the first time since the COVID-19 pandemic. This was due to a significant decrease in output and new order intakes as manufacturers in South Korea reported a subdued domestic economy.

Additionally, rising cost pressures at the end of 2024 led to the strongest rise in output charges since November 2023, further weighing down the manufacturing sector's performance.

For the first time since July 2020, manufacturers expressed pessimism regarding the year-ahead outlook for output.

Production levels also experienced a steeper decrease with output falling moderately, marking the fourth consecutive month of decline.

The decline in production was attributed to falling new orders and a contraction in incoming business, primarily driven by weaker client confidence in the domestic market. Despite fractional growth in new export orders, weaknesses were reported in the US and Mainland China markets.

Concerns about the health of the domestic economy and the potential impacts of increased US protectionism contributed to the negative outlook for production over the coming year. As a result, sentiment within the sector was the most pessimistic in four-and-a-half years.

Backlogs of work decreased for the fifth time in the past six months, and firms cited a lack of new orders as the reason for completing existing work. Inflationary pressures also accelerated, with input price inflation reaching a five-month high.

Overall, December provided a subdued picture for the South Korean manufacturing sector, reflecting a decline in both output and new orders. Inflationary pressures, along with pessimism regarding the outlook for the coming year, contributed to a challenging environment for manufacturers in South Korea.