South Korea’s Manufacturing Activity Expanded In December: HSBC PMI

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By Bhaskar Prasad | January 2, 2013 3:43 PM EST

South Korea’s manufacturing activity expanded in December to end the six months of contraction, according to the HSBC Purchasing Managers’ Index (PMI) released Wednesday.

The reading of the PMI, a measure of the nationwide manufacturing activity, rose to 50.1 in December compared to 48.2 in November. “The first improvement in Korean manufacturing conditions since May indicates that Korea is poised for a recovery next year. New orders have increased, lifting production and employment. We believe the upward momentum can be sustained at a gradual, but meaningful, pace on the back of stronger external demand. As such, this will reduce the pressure on the Bank of Korea to deliver further monetary easing,” Ronald Man, Economist at HSBC in Asia, said in a note.

Significantly, the index returned to the expansion zone, a reading above 50. The expansion of the manufacturing activity should allay the fears about a sharp retardation of the South Korean economy. However the analysts have concerns about the economy gaining momentum.  “Following six months of continuous decline new order volumes increased in the latest survey period. However, the rate of growth was only slight, with respondents commenting that underlying demand conditions remained fragile and economic conditions weak,” Markit said in a note.

This report comes after it was revealed Tuesday that South Korea’s trade surplus fell in December compared to that in the previous month, indicating that the soft global demand continues to weigh on the economic growth of the country. According to the data released Tuesday by the Korea National Statistical Office, the country’s trade surplus, which measures the difference in value between exported and imported goods and services over the reported period, dropped to $2.03 billion in December, from $4.38 billion in November.

Earlier this week, it was reported that South Korea's consumer price inflation rose in December at a slower rate than expected, indicating that the country’s inflationary pressures are declining to provide room for further monetary easing policy measures required to boost economic growth. According to the data released Monday by the Korea National Statistical Office, the country’s CPI, which measures the change in the price of goods and services from the perspective of the consumer, rose 1.4 percent in December, down from a 1.6 percent increase in November and below the analysts’ expectation of 1.5 percent. 

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