SEOUL (Reuters – South Korea’s factory activity grew at the lowest rate for 13 months, in October. It was impacted by a decline in output and softer market demand. These factors were exacerbated by shortages and disruptions to supply chains and chip supplies.

Although the IHS Markit purchasing manager’s index (PMI), for October, fell to 50.2 in September from 52.4 in September but managed to stay above the threshold of 50 that signals expansion in activity for a thirteenth consecutive month.

According to Usamah Bhatti (economist at HIS Markit), “October data proved that South Korean raw material shortages, supply chain problems began to bite the South Korean manufacturing industry sector…pointing to a wide stagnation in operating conditions.”

In just two months output returned to contraction. The sub-index was at 46.6. This is despite the fact that the rate of decline since July 2020 has been the result of significant material shortages, particularly semiconductors, and other electrical parts.

Both total new orders and export orders barely increased, and respondents also highlighted slowing international demand and difficulty sourcing container and freight capacity.

Sharp increases in raw materials costs in severe shortages prompted further price rises at South Korean manufacturing companies. The input prices increased at the fastest rate in three months.

Firms were able to pass on higher costs to their clients. This also led to factory gate inflation reaching a 3-month peak.

Firms saw staff levels being reduced for the first times in eight months to preserve margins.

Firms continued to be concerned about ongoing disruptions and shortages. Business confidence has slowed to its lowest level since September 2020.

Bhatti explained that the IHS Markit current estimates of industrial production growing by 0.2% per year in 2022 are broadly consistent with those for 2021, which saw a 6.2% rise in 2021.