S.Korea's June manufacturing contracts 5th month, decline eases as domestic outlook improves

South Korean Manufacturing Contracts for Fifth Consecutive Month

According to a survey released by S&P Global on Characteristics of foreign exchange dealersTuesday (July 1), South Korea's manufacturing Purchasing Managers' Index (PMI) rose slightly to 48.7 in June from 47.7 in May. However, it remained below the 50-point threshold for the fifth consecutive month, indicating that manufacturing activity continues to contract.

Usamah Bhatti, an economist at S&P Global Market Intelligence, noted that although manufacturing output and sales are still declining, the rate of decline has narrowed compared to the previous month, mainly due to initial improvements in the domestic market under the new government led by Lee Jae-myung.

New Government Instills Political Stability and Boosts Economic Confidence

A survey by the Bank of Korea showed that in June, the country's consumer confidence index reached its highest level in four years. This was supported by the conclusion of the six-month uncertainty following the early presidential elections on June 3, laying a stable political foundation for economic recovery.

The survey indicates that the confidence of South Korean businesses in expected production over the next year has significantly improved, reaching its highest level since May 2024. Companies generally believe that as global economic uncertainties slightly ease, both the supply chain and financing environment are witnessing positive changes, which brings more hope for future production growth.

Export Orders Remain Weak, Global Demand Pressure Persist

Despite the improvement in domestic market demand slowing the rate of manufacturing contraction, export orders remain weak. The survey shows that new export orders in South Korea's manufacturing sector fell at a faster rate in June, primarily due to weakened demand from major export markets such as Japan, China, and the United States, putting continuous pressure on sales.

S&P Global analysts believe that although global economic risks have generally eased, the pace of external demand recovery is slow. Especially against the backdrop of high interest rates and geopolitical conflicts, the demand for South Korean electronics, auto parts, and chemical products in major global markets still needs time to recover.

Businesses Remain Cautiously Optimistic

The survey reveals that South Korean manufacturing businesses generally hold a cautiously optimistic outlook for the future, believing that with domestic political stability and government measures to boost domestic demand, the South Korean economy will make a moderate recovery. However, vigilance is needed against potential challenges from global demand fluctuations, raw material prices, and logistics costs.

Usamah Bhatti pointed out, "For the first time since last May, businesses' expectations for future output growth have reached a high point, reflecting positive expectations for policy stability and economic prospects."

Ongoing Observation Required for Manufacturing Recovery

Although the narrowed decline in the June manufacturing PMI sends positive signals for South Korea's economy, the fact that it has remained below the key threshold for five continuous months reminds the market that the foundation for recovery still needs to be reinforced.

Investors and policymakers are watching to see if the Lee Jae-myung government can continue its efforts in stimulating employment, stabilizing real estate, and boosting consumption, while also promoting the development of high-tech and green manufacturing sectors to inject long-term growth momentum into the South Korean economy.

Market Focus on Upcoming Key Economic Data

This week, the market will closely watch South Korea's June trade balance, Consumer Price Index (CPI), and manufacturing PMI data from major global markets to assess how changes in external demand affect the pace of recovery in South Korean exports and manufacturing.

As global economic and supply chain adjustments continue, whether South Korean manufacturing can achieve stable recovery will have a significant impact on the future movements of the South Korean won, the export industry chain, and regional economic performance.

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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