Vietnam Manufacturing at Lowest Level Since April 2011

August 01, 2012 /

July data pointed to another difficult month for the Vietnam manufacturing sector, with overall business
conditions worsening at a much faster pace than in the previous month.

This was highlighted by a fall in the seasonally adjusted HSBC Vietnam Manufacturing PMI™ to 43.6, from 46.6 in June. The index has now posted below the neutral 50.0 value for four months in a row, and the latest reading was the lowest since the survey began in April 2011.

Manufacturers in Vietnam cited reduced production levels during July, thereby extending the current period of contraction to four months. Latest data indicated that both output and new business levels declined at the fastest rates since the survey began 15 months ago.

The survey has indicated a drop in new order volumes in each month since May. Anecdotal evidence widely pointed to unfavourable economic conditions and suppressed spending urge among clients.

The overall drop in new business volumes was mainly driven by weaker demand from domestic clients, as new export orders continued to decline at only a modest pace. Companies reporting a fall in new work received from abroad generally cited lower exports to China and softer demand from European markets.

Lower workloads allowed firms to focus on reducing their volumes of unfinished business in July. As a result,
latest data pointed to a marked fall in backlogs of work, with the pace of decline the fastest in the 16-month survey history. Meanwhile, manufacturers in Vietnam trimmed their staffing levels, thereby extending the current period of workforce reduction to two months.

Survey respondents widely attributed the fall to reduced inflows of new work and an associated decrease in
production requirements at their plants.

Vietnamese manufacturers cut back on their input buying for the fourth successive month in July. The latest reduction in purchasing activity was the sharpest since the survey began in April 2011, which in turn
resulted in a marked fall in pre-production inventories.

Survey respondents also sought to reduce their stocks of finished goods in July, with a marginal decline
contrasting with the solid expansion seen in June. Lower demand for inputs contributed to another improvement in supplier delivery times during the latest survey period.

July data signalled a solid decline in average input costs in the Vietnamese manufacturing sector, which was
generally attributed to lower fuel and raw material prices. This allowed firms to lower their output charges
in July, which extended the current period of price discounting to three months.

Trinh Nguyen, Asia Economist at HSBC said: “The sharp contraction of manufacturing activity reflects still weak domestic demand in Vietnam, as consumers are unwilling to spend and the credit environment remains challenging. The decline of employment and quantity of purchases suggests that the situation is likely to continue in the next couple of months.

“The SBV eased policy in the first half. With inflation slowing and
demand still weak, we expect another 100bp cut of refinance and other rates to come soon.”

 

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