World Economy

S. Korea Regaining Grip on Struggling Economy

S. Korea Regaining Grip on Struggling EconomyS. Korea Regaining Grip on Struggling Economy

South Korea’s manufacturing sector expanded at a faster rate in June, although overall growth remained subdued in a sign that Asia’s fourth largest economy was still struggling with weak international demand and declining investment.

The Markit/Nikkei South Korea manufacturing purchasing managers’ index improved to 50.5 in June from 50.1 on a scale where a reading above 50 affirms economic growth. While the headline figure showed only a modest improvement, production increased at the fastest rate since February 2015 while new export orders expanded at the fastest rate since January 2015, Economic Calendar reported.

Meanwhile, employment growth reached a 27-month high and buying activity rose at a faster rate, data showed.

“Operating conditions in the South Korean manufacturing sector improved at a quicker rate at the end of the second quarter of 2016,” Markit economist Amy Brownbill said in a statement. “According to PMI data, the main driver behind the rise in production was international demand, as new export orders expanded at the sharpest pace in 17 months. As a result, goods producers were more confident towards their hiring policies, with the rate of job creation the fastest since March 2014.”

South Korea’s economic growth has weakened considerably in recent quarters on dismal exports and falling capital investment. Gross domestic product growth slowed to 0.4% in the January-March period following a 0.7% advance in the fourth quarter.

 Hit Hard

The economy showed signs of progress in the third quarter of 2015, where it expanded 1.2%. That was the fastest quarterly expansion since 2010, reflecting a strong rebound from the previous quarter’s modest 0.4% expansion.

As an export-driven economy, South Korea has been hit hard by a sputtering global economy. Manufacturing accounts for nearly one-third of the nation’s GDP, making it especially vulnerable to wavering international demand.

The World Bank recently downgraded its outlook on global growth for 2016 to 2.4%, which is roughly in line with last year’s growth pace. Volatile emerging markets, geopolitical tensions and weak commodity prices are all expected to weigh on the South Korean economy for the foreseeable future.

The International Monetary Fund expects the South Korean economy to expand 2.7% this year, up slightly from 2.6% in 2015. Growth in the advanced Asia region as a whole is forecast to remain relatively steady at 5.3%.

South Korean equities have enjoyed relative stability this year despite a volatile domestic economy. The Korea Stock Exchange’s KOSPI Index has a positive year-to-date return of 1.3%. The KOSPI rallied 3.2% last week as global equities rebounded from a Brexit-induced selloff.