SEOUL, May 4 - South Korea's manufacturing sector recorded its most vigorous expansion in more than four years in April, driven in large part by continued strength in semiconductor demand that lifted both output and new orders. The purchasing managers index, released by S&P Global, came in at 53.6 for April, up from 52.6 in March and marking the strongest reading since February 2022.
Analysts said the conflict in the Middle East had a measurable effect on the sector's recent performance. While the war disrupted some supplies of raw materials, it also prompted some buyers to place additional orders to rebuild inventories as a hedge against potential further delays and higher prices.
"The wider impact of the war will remain to be seen, but latest PMI data indicated that the conflict had played a part in sustaining demand and production levels, as some firms mentioned that they had received additional orders to help build inventory to protect against further delays and price rises," said Usamah Batti, economist at S&P Global Market Intelligence.
Alongside stronger activity, the rate of input cost inflation jumped sharply in April. S&P Global's data showed that the pace of rise in input costs was the steepest recorded since the survey began in April 2004. That acceleration in input prices accompanied the upswing in output and ordering, adding pressure on manufacturers' cost bases.
The April PMI reading underscores the dual dynamics at play: demand momentum in capital-intensive segments such as semiconductors, and cost-side pressures driven in part by supply disruptions. Firms' reports of inventory rebuilding reflect activity aimed at cushioning operations against what they perceive as heightened supply risk and possible further inflationary moves.
While the immediate data point signals robust factory-sector momentum, the persistence of input cost inflation and the uncertain broader effects of geopolitical conflict were highlighted in the PMI commentary as factors to monitor going forward.
Key points
- April PMI rose to 53.6 from 52.6 in March, the strongest since February 2022.
- Semiconductor demand supported both production and new orders, bolstering manufacturing activity.
- Input cost inflation surged in April, at its steepest rate since the series began in April 2004.
Sectors impacted
- Semiconductor and electronics manufacturing - demand-driven output and orders.
- Raw materials and supply chains - affected by disruptions tied to the Middle East war.
- General manufacturing - facing higher input cost pressures.
Risks and uncertainties
- Supply disruptions linked to the war in the Middle East could continue to constrain raw material availability, affecting manufacturing supply chains.
- Sharp acceleration in input cost inflation may squeeze margins for manufacturers if higher costs cannot be passed on to buyers.
- The longer-term economic impact of the geopolitical conflict remains unclear and could influence future demand and production.