SEOUL (Reuters) - South Korea's factory activity contracted at its fastest pace in three months in May, a survey showed on Monday, reversing the previous month's brief expansion, as new orders fell amid an intensifying Sino-U.S. trade dispute, which hurt export demand.
The headline Nikkei/Markit purchasing managers' index (PMI) on the country's manufacturing sector fell to 48.4, from 50.2 in April.
The overall index dropped below the 50-point level that separates growth from contraction, with major sub-components remaining weak.
New export orders from the world's sixth-largest exporting nation shrank at a faster pace, extending the contraction for a 10th straight month, the longest decline since 2015.
New orders also contracted for a seventh straight month with the sub-index at 47.1, a sign of further deterioration in domestic demand.
"Given the recent re-escalation of trade tensions between the United States and China, as well as no real signs of the downturn in the global trade cycle bottoming out, South Korean manufacturers are facing extreme difficulties," said Joe Hayes, an economist at IHS Markit.
The PMI survey also showed manufacturers cutting headcount as production fell on weak demand, both at home and abroad.
South Korea's unemployment rate rose to a three-month high in April to 4.1%, close to a nine-year high of 4.4% reached in January, as jobs were shed in the manufacturing and construction sectors.
The PMI shows South Korean firms are scaling back their future output plans amid the increasing economic challenges.
"Subsequently, firms moderated their expectations, leading business confidence to dip to its lowest since August 2016," Hayes said.
On Friday, South Korea's central bank kept its monetary policy unchanged but a split vote in the decision provided a firm signal the bank was shifting to a dovish footing as the trade war bolstered calls for more stimulus.
The May PMI provides another sign South Korea's economy could continue cooling in the second quarter, having already contracted at its fastest pace since the global financial crisis in the first quarter.