By Jihoon Lee

SEOUL (Reuters) – South Korea's factory activity shrank for a second consecutive month in October, with output falling by the most in 16 months, according to a private survey released on Friday, amid signs of a global demand slowdown.

The Purchasing Managers' Index (PMI) for manufacturers in Asia's fourth-largest economy, compiled by S&P Global, reported a value of 48.3 in October on a seasonally adjusted basis, unchanged from September.

In September, the index dipped below the 50-mark, which distinguishes expansion from contraction, for the first time in five months, recording its lowest value since June 2023.

The latest survey indicated that output declined at the fastest rate since June 2023, with firms mentioning reduced order volumes due to sluggish economic conditions. However, the slump in new orders showed a marginal improvement compared to the previous month.

The decrease in new export orders also lessened slightly, with firms indicating weak demand from the United States, Europe, and China.

"With the sector often regarded as a bellwether for global exports, October data likely signals a gradual slowdown in global trade and industrial activity," stated Usamah Bhatti, economist at S&P Global Market Intelligence.

South Korea's economy barely grew in the third quarter due to subdued exports, following an unexpected contraction in the second quarter, raising the likelihood of further stimulus measures to foster growth.

The survey also revealed that purchasing activity contracted for the first time since August 2023, and backlogs of work fell by the most since June 2023, often indicating near-term activity.

Despite ongoing economic concerns, manufacturer optimism for the upcoming year improved in October after reaching a 21-month low in September, as firms anticipated a demand recovery in the auto and semiconductor sectors.