South Korea Manufacturers' Confidence at 3-Year Low

By William Sim

June 30 (Bloomberg) -- South Korean manufacturers' confidence fell to the lowest level in more than three years as record fuel prices increased production costs amid a global economic slowdown.

An index measuring businesses expectations for July dropped to 77 from 88 in June, according to a survey of 1,554 manufacturers released by the Bank of Korea in Seoul today. That's the weakest reading since February 2005, and a score lower than 100 means pessimists outnumber optimists.

Business and consumer confidence is declining worldwide as oil costs, which have doubled in the past year, erode household incomes and squeeze corporate profits. South Korea's economy, Asia's fourth-largest, expanded at the slowest pace in more than a year last quarter while inflation has accelerated to the highest rate since 2001.

``Deteriorating sentiment will drag down the already slowing global economy further this year,'' said Chun Chong Woo, an economist at SC First Bank Korea Ltd. in Seoul. ``The outlook depends on when oil prices will peak out.''

South Korean manufacturers were surveyed this month at the same time as truck drivers' nationwide went on strike because of rising fuel costs and amid mass street protests over the resumption of U.S. beef imports.

Hyundai Motor Co.'s labor union voted on June 28 in favor of a strike to demand higher pay and to protest the U.S. beef imports.

President Lee Myung Bak's approval has plunged more than half to 21 percent since he took office in February, according to a survey by newspaper Chosun Ilbo, which gave a margin of error of plus or minus 3 percentage points.

Shares Decline

South Korea's benchmark Kospi index, which has dropped 11 percent this year, fell 0.2 percent to 1,681.77 at 10:15 a.m. in Seoul, led by exporter Samsung Electronics Co. The won slipped 0.3 percent to 1,045.15 against the U.S. dollar.

U.S. consumers were the gloomiest in 28 years in June and European confidence fell to the lowest in three years.

In Japan tomorrow, the central bank's Tankan poll of manufacturers may show sentiment sank to the lowest in almost five years, according to a Bloomberg News survey of economists.

An index measuring South Korean manufacturers' outlook for domestic sales declined to 100 from 105, while that for exports fell to 110 from 113. Exporters, so far, have been able to weather the economic slowdown in the U.S. by boosting sales to China and other emerging markets.

An index of non-manufacturing companies' expectations for July plunged to 75 from 82 as concern grew that sales and profits may slow. Construction and transport companies led the decline.

The Bank of Korea surveyed the manufacturers and 791 non- manufacturers between June 17 and June 23.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.