South Korea factory growth hits eight-month low as AI boom fades, Middle East war strains Asia

South Korea’s manufacturing sector grew in October at the slowest pace in eight months, with the S&P Global purchasing managers’ index (PMI) falling to 51.3 from 53.9 in September, according to a survey published Monday. The reading was the lowest since February, though it remained above the 50-mark that separates expansion from contraction for an 11th consecutive month.

Output growth was the weakest in 10 months, while the increase in new orders was the smallest in four months. Some firms noted softer demand for automobiles, according to the survey. International sales were supported by demand from the Asia-Pacific region, but U.S. demand was relatively subdued.

“October PMI data showed sharp slowdowns in output and new order growth, with production rising at its weakest pace in the year so far. Firms frequently cited slowing demand, raw material shortages and high costs as drags on performance,” said Usamah Bhatti, economist at S&P Global Market Intelligence, as reported by wkzo.com.

The slowdown comes despite Asia’s fourth-largest economy growing 1.0% in the third quarter, beating market expectations, as a global AI chip boom boosted exports and investments.

**Broader Asian manufacturing loses steam**

The South Korean data was part of a regional pattern. Factory activity slowed in China, Japan, South Korea and Taiwan in October, private surveys showed, indicating that the drag from the U.S.-Israeli war on Iran may be offsetting the benefits from robust global demand for chips and AI-related goods.

“Strong chip and AI demand had masked soft spots in Asian and global economies. But that’s becoming hard to sustain with the Middle East war dragging on for so long, pushing up fuel and food prices,” said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute in Tokyo. “High inflation is hurting Asian consumption. Intensifying price competition from China is also weighing on rival exporters like Japan and South Korea.”

Japan’s PMI eased to 53.3 in October from 54.1 in September, marking the slowest expansion in seven months as output and new orders lost momentum. Taiwan’s PMI stood at 54.9, down from 56.7 in September.

China’s PMI, compiled by S&P Global, stood at 52.0 in October, exceeding the 50-mark but falling from 52.1 in September. The reading followed official data released Oct. 31 showing China’s factory activity shrank in October, the third contraction in four months.

“The PMIs suggest that China’s economic activity lost momentum in October following September’s pick-up. Manufacturing softened a touch, but foreign demand still looks resilient,” said Nguyen Hoang Nam, China economist at Capital Economics. “More worrying was the sharp reversal in construction activity and expectations, suggesting that firms have become less confident that fiscal support will provide a substantial boost over the rest of the year.”

**Divergent trends, IMF warning**

Other Asian economies showed faster expansion in October, including Vietnam, Indonesia and Malaysia. India’s manufacturing growth slowed as domestic demand eased and hiring weakened, though a surge in export orders helped cushion the slowdown.

Asia has outperformed many other regions as manufacturers benefited from brisk demand for chips and AI-related goods. But the International Monetary Fund has projected Asia’s economic growth to moderate in the coming years and warned of heightening risks from the Iran war-induced energy shock and a potential correction in the AI boom.

The IMF said it now expects Asia’s economy to grow 4.8% in 2026 and 4.4% in 2027, higher than projections made in April but still slowing from a 5.0% expansion in 2025.

The risks are particularly acute for countries heavily exposed to AI-related exports. According to straitstimes.com, Japan’s central bank warned that if growth expectations for AI decline substantially, a tightening of global financial conditions accompanied by a rapid repricing of stocks and a sharp slowdown in the race for AI development could significantly hurt Japan’s economy through a plunge in exports and production.