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Nov 01, 2019 / 08:23

Vietnam’s manufacturing activity ends 46-month sequence of expansion

Business conditions in the Vietnamese manufacturing sector were unchanged in October as new order growth slowed and back-to-back declines in output were seen for the first time since the third quarter of 2013.

The headline Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) came in at 50.0 in October, down from 50.5 in September, ending a 46-month sequence of expansion in the sector, according to Nikkei and IHS Markit. 

A reading below the 50 neutral mark indicates no change from the previous month, while a reading below 50 indicates contractions and above 50 points to an expansion.

As a result, business conditions in the Vietnamese manufacturing sector were unchanged in October as new order growth slowed and back-to-back declines in output were seen for the first time since the third quarter of 2013. Employment also decreased during the month.

On the price front, the rate of input cost inflation accelerated and firms raised their charges for the first time in almost a year in response.

Weakness in October was mainly centered on intermediate goods firms. While new order volumes continued to rise, the rate of growth was only marginal, having slowed for the third month in a row to the weakest in the current sequence of expansion which began in December 2015. Some panelists indicated that customers had looked to reduce the size of their orders. 

A similar pattern was seen with regards to new export orders, with the rate of expansion softening to a slight pace. 

Signs of softer demand conditions caused manufacturers to reduce their output for the second month running in October. That said, the rate of contraction was only marginal and broadly in line with that seen in September. 

Firms also scaled back their staffing levels for the second month running. Although modest, the rate of job shedding was the joint-sharpest since March 2015. Reduced operating capacity meant that backlogs of work increased for the fourth time in the past five months. 

Purchasing activity was unchanged in October, thereby ending a 46-month sequence of expansion. Some panelists raised purchasing in line with higher new orders, but others cut input buying amid lower output requirements. 

There were some reports of issues with the supply of raw materials in October, leading to higher input prices and longer suppliers' delivery times. 

The rate of input cost inflation accelerated to a five-month high, but remained below the series average. In response to a larger rise in input prices, firms increased their output charges for the first time in 11 months. The rate of output price inflation was only marginal, however, as fragile customer demand restricted pricing power. 

“The soft patch in the Vietnamese manufacturing sector continued in October, with firms seemingly cautious regarding output, employment and purchasing given signs of weaker new order growth and global demand weakness,” said Andrew Harker, associate director at IHS Markit, which compiles the survey.

"It is important to note, however, that the historical relationship between the Vietnam PMI and official data suggests that even a reading around the 50 mark translates into solid production growth in the official numbers. What we are likely seeing at present, therefore, is more of a growth slowdown than anything more concerning.”