S Korea’s factory output, chem exports falter in March as recession looms

SINGAPORE (ICIS)–South Korea’s factory output and chemical exports deteriorated in March as new orders plunged following the coronavirus outbreak.

Production has declined to levels not seen since early 2009, industry and official data showed on Wednesday.

The latest set of data supports projections of the economy falling into a recession this year as the export-dependent country faces poor demand from its key markets following the coronavirus outbreak.

South Korea is also facing weakening domestic demand from the high number of local infections, which has grown to over 9,000 as of 31 March, the latest World Health Organization (HWO) data showed.

IHS Markit’s South Korea manufacturing purchasing managers’ index (PMI) fell to 44.2 in March, down from 48.7 in February.

Production schedules were impacted by simultaneous supply-side and demand-side disruptions across the manufacturing sector, it said.

“Manufacturing production fell at the sharpest rate since early 2009 during March, reflecting intensified supply chain disruption and a stronger negative demand shock as aggregate orders fell substantially,” said Joe Hayes, an economist at IHS Market.

The lack of air cargoes; staff and material shortages; business shutdowns and quarantines – plaguing the rest of the world – are also taking their toll on manufacturing sector in South Korea.

“On the export side, anecdotal evidence suggested that firms in the automotive industry were particularly hurt by a weaker global economic picture,” he said.

The country’s export of refined oil products and petrochemicals fell by 5.9% and 9.0%, respectively in March, on softer demand from China, the Ministry of Trade, Industry and Energy said on Wednesday.

Overall exports fell by 0.2% year on year in March while imports dropped by 0.3%. The country’s trade surplus stood at $5bn in March, marking 98 straight months in which the country’s exports have exceeded imports.

In response to the pandemic shock, the Bank of Korea (BOK) slashed its policy rate by 50bp to a record low of 0.75% at its emergency meeting on 16 March.

On 24 March, President Moon pledged South Korean won (W) 100tr in emergency rescue funds for businesses under growing stress, including small-to-medium enterprises, self-employed business and conglomerates.

“Assuming the social distancing measures start to ease in late April in Europe and the US, we expect South Korea’s exports and the overall economy to improve sequentially in the second half of this year,” Japan’s Nomura Global Markets Research said in a report.

However, the recovery will be at a moderate and gradual pace, due to the lack of an effective vaccine and a potential second wave of infections in major economies late in the fourth quarter as winter arrives, it said.

As a result, for full-year 2020, Nomura expects GDP growth to contract by

6.7%, reversing from the 2.0% expansion  in 2019 and worse than the 5.5% contraction during the 1998 Asian financial crisis.

Fitch Solutions on 30 March revised its projections for South Korea’s  economy, with real GDP to contract by 0.3% this year from its previous estimate of  1.7%.

Focus article and interactive by Nurluqman Suratman