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Oct 15, 2019 / 11:14

Expert warns of impact of Vietnam’s slowing industrial activities on GDP growth

The last time the month-on-month industrial production index (IPI) fell and the headline Nikkei Vietnam Manufacturing Purchasing Managers’ index (PMI) was as low as 50.5 in September, GDP growth of the first and second quarters in 2016 slowed to 5.5%.

Vietnam's headline PMI from Markit’s survey and month-on-month IPI indicated slowing industrial activities in September, potentially causing negative impacts on GDP growth in the remaining months of the year, according to Viet Dragon Securities Company (VDSC). 

This was despite the fact that Vietnam’s economy grew strongly in the third quarter, making nine-month GDP growth recording its best reading in nine years at 6.98%. 

Total industry (including mining and quarrying, manufacturing activities, production of electricity and gas, water supply, sewerage, waste management and remediation activities) peaked in July and August. During this period, although mining and quarrying activities continued to decline, total industry still maintained its pace thanks to manufacturing activities. Manufacture of computer, electronic and optical products contributed significantly. At the same time, there was a strong pick up in export of phones and parts in the third quarter.

In September, total industry grew 10.2% year-on-year. Although mining and quarrying slid 6.6%, manufacturing activities advanced 12.3% year-on-year in September.

According to VDSC, a decrease in PMI and IPI MoM in September were not a big concern now due to a high industrial activities in August. Moreover, the GDP growth in the third quarter was still positive. However, the brokerage suggested the government watch closely these two indices. Because the last time IPI m-o-m fell and PMI were this low, GDP growth rate of the first and second quarters in 2016 was only about 5.5%.

Furthermore, manufacturing activities from the Nghi Son refinery and Formosa steel mill in central Vietnam bolstered headline results in the first half of 2019. However, Samsung manufacturing activities replaced these two to contribute the most in the third quarter, mainly because the South Korean tech giant released new products during this period.

Hence, as the contribution of Nghi Son and Formosa will not be as significant in the fourth quarter as in the first half of the year, October data is expected to give more clues on whether Samsung can keep its pace or what kind of activities are going to support total industrial activity in the final quarter of 2019, stated VDSC.