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Manufacturing PMI falls back into contraction

2013-06-11 11:30:04

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The seasonally adjusted Vietnam Manufacturing Purchasing Managers’ Index (PMI) published by HSBC on Monday posted below the neutral 50.0 mark for the first time since February.

The index went down to 48.8 from 51.0 in April, as May saw levels of output, new orders and employment of the Vietnam manufacturing sector all slip back into contraction following modest gains in the previous two months.

The Vietnam Manufacturing PMI unveils data collected from monthly surveys on operating conditions in the local manufacturing sector. The reading above 50.0 points to improvement in business conditions, while that below 50.0 indicates a decline.

More than a quarter of respondents reported lower output levels in May due to the drop in new order intakes. Some ascribed falling output volumes to their intention to reduce inventory holdings.

The domestic market remained the main drag on manufacturing performance, whereas levels of new export business continued their modest recovery. New export order inflows have now improved in each of the past three months, with the latest rate of growth the quickest since April 2012.

Trinh Nguyen, Asia Economist at HSBC, remarked: “Vietnam’s economic recovery process is very fragile and continues to be dragged down by lackluster domestic demand.”

“Unless the issue of bad debt in the financial system is resolved, low appetite for consumption and investment will continue to weigh on Vietnam’s growth potential,” she stated.

In May, job losses were reported for the second time in four months, as companies maintained a cautious approach to hiring. As well as subdued demand, companies linked the cut in payroll numbers to cost control initiatives.

This also played a role in purchasing and stock-holding decisions, leading to lower levels of both pre- and post-production inventories and a modest scaling back of input buying volumes.

“The contraction of employment and output in the manufacturing sector is representative of overall economic activity in Vietnam,” said Trinh Nguyen. She added that “improved external demand in the U.S. provides some buffer but the still-weak global manufacturing data suggests that external headwinds are strong.”

On the price front, May data signaled that inflationary pressure remained relatively mild in the manufacturing sector. Although average input costs increased for the fifth successive month, the rate of inflation was the weakest during that sequence.

Average output charges, meanwhile, were broadly unchanged last month, as competitive pressures stifled the pricing power of manufacturers. The vast majority of companies (almost 84%) reported no change in factory gate prices.

As per the May survey, there remained a degree of available capacity at both manufacturers and their suppliers. Because of weaker new order inflows, backlogs of work at Vietnam manufacturers contracted at one of the sharpest rates in the survey history.