South Korea Sept factory activity shrinks at slowest pace in eight-months

SEOUL (Reuters) - South Korea's factory activity in September shrank at the slowest pace in eight months, a private survey showed on Monday, adding to signs that global demand is improving although second waves of coronavirus infections remain a threat to the economic recovery.

The IHS Markit purchasing managers' index (PMI) rose to 49.8, from 48.5 in August, the highest reading since January, but remained below the 50-mark threshold that separates contraction from growth for a ninth month.

Major sub-indexes continued to contract albeit at a softer rate, while factory production returned to growth for the first time in eight months.

"September data was encouraging ... Output returned to growth amid signs of improving demand conditions and some reports of the reopening of client businesses," said Shreeya Patel, economist at IHS Markit.

"However, not all is positive ... The combination of rising cases across key export destinations and subdued domestic demand weighed on operating conditions," she added.

Several European countries announced new restrictions to curb surging coronavirus infections, while several U.S. states continue to grapple with a rising number of virus cases.

At home, new virus clusters emerged at a church and a major political rally in August, leading to more than 1,800 infections and unprecedented social distancing measures.

The survey showed employment shrank for a 17th straight month and at a faster rate as firms did not replace employees who retired or voluntarily resigned.

While businesses remained confident in September, the degree of optimism eased slightly from a month earlier reflecting worries over the global economic downturn and persistent threat posed by the pandemic.

South Korea plunged into recession in the second quarter in its worst economic decline in more than two decades as the pandemic battered exports and social distancing curbs paralysed factories.

"South Korea's manufacturing sector showed signs of moving further away from April's nadir, but if subdued domestic and foreign demand persist the path towards recovery could be lengthy," Patel said.

(Reporting by Joori Roh; Editing by Shri Navaratnam)