South Korea factory growth slows sharply as costs, bottlenecks bite

Output growth eased toa 5-month low amidst material shortages.

South Korean manufacturers closed out the first half of 2026 on steadier ground than earlier in the year, though the pace of expansion cooled markedly in June as rising costs and supply bottlenecks weighed on the sector.

The seasonally adjusted S&P Global South Korea Manufacturing Purchasing Managers’ Index fell to 52.1 in June, down from 54.8 in May, signalling a slower and more modest improvement in factory conditions. Output and new orders both stayed in expansion territory but grew at their weakest rates in five and six months respectively.

Optimism at 7-month low

New orders rose for the seventh consecutive month, but at the slowest pace so far this year, with manufacturers blaming higher raw material prices and the fallout from the conflict in the Middle East for softer demand. Gains were confined largely to the domestic market, as export orders fell for a second month running.

Production growth slackened in step, held back by rising costs and delays in receiving inputs. Some firms drew on finished-goods stocks to keep pace with sales, driving inventories down for a fourth month in a row. Backlogs of work, meanwhile, built up at the fastest rate in just over four years, as shortages of materials and staff strained capacity. Employment fell for the first time in four months.

Input costs rose sharply, driven by higher raw material prices and a weaker won, which added to the expense of imported goods. Although the rate of input inflation eased from April’s record high, it remained well above the post-pandemic norm. Manufacturers passed on a good deal of that burden to customers, raising output charges at a pace similar to May’s.

Usamah Bhatti, economist at S&P Global Market Intelligence, said the positive signals seen across the South Korean manufacturing economy during the second quarter showed signs of faltering as the first half of the year drew to a close, with output and new orders remaining in expansion but growth easing to five- and six-month lows. He added that rising raw material prices and difficulties sourcing inputs had piled further pressure on costs and capacity, whilst worries over the domestic economy and uncertainty about when price pressures might ease had dragged optimism down to its lowest level since last November.