The return to coronavirus lockdowns across Europe threatens to derail Asia’s biggest exporters just as they return to growth, economists have warned.
South Korean factories last month returned to growth for the first time this year, according to an industry gauge, the latest sign of an export-led recovery for Asia’s fourth-biggest economy.
The IHS Markit manufacturing purchasing managers’ index rose to 51.2 in October from 49.8, marking the first time since December 2019 the reading was higher than the 50 point level separating expansion from contraction.
Usamah Bhatti, an economist at IHS Markit, said the data reflected a “clear improvement” in South Korea’s manufacturing sector despite concerns around rising job losses.
“A gradual recovery has been seen as the impacts of the Covid-19 pandemic eased and outright expansions in both output and new orders were registered, with both rising at their fastest paces in seven-and-a-half years,” Mr Bhatti said.
However, Moody’s analysts noted that while the South Korean economy was tracking ahead of most of its regional counterparts, the fresh series of virus-linked restrictions in France, Germany and the UK was poised to dampen external demand in the near term.
“The chances of sustaining the trade-led recovery are lower in the wake of rising global infections, which have led to the re-imposition of restrictions across parts of Europe,” Moody’s analysts said in a research note.
“With winter approaching, an acceleration in the infections trend remains a key downside risk, which can moderate the net gains for South Korea’s exporters,” the rating group said.
In the three months to the end of September, South Korea’s economy grew 1.9 per cent from the second quarter. But on a year-on-year basis, third-quarter gross domestic product contracted 1.3 per cent, data from Seoul last week showed.
The better-than-expected results followed robust shipments of computer chips and other electronics components, particularly to China.
Alex Holmes, an emerging markets economist with Capital Economics, did not expect the export recovery to be derailed with computer chip and electronics shipments remaining strong and shipments of cars also recovering.
“For one thing, lockdowns are likely to be less restrictive than earlier in the year and we don’t expect as big a hit to growth from second and third waves in these places as from the first wave,” Mr Holmes said.
“What’s more, we expect the outperformance of electronics exports to continue,” he added. “Indeed, the switch to homeworking and ecommerce due to the virus has been one of the main factors boosting global demand for electronics.”