Vietnam’s PMI recovers but still under 50

The S&P Global Vietnam Manufacturing Purchasing Managers’ Index™ (PMI) stayed below the 50.0 no-change mark for the fourth month running in June, signalling a sustained deterioration in the health of the sector. At 46.2, up from 45.3 in May, the latest reading pointed to a solid decline in operating conditions.

According to S&P Global, reports of demand weakness were prevalent throughout the latest survey, with deteriorating market conditions the primary cause of the latest reduction in new orders.

Total new business was down for the fourth successive month, and at a solid pace which was nonetheless much softer than that seen in May. New export orders decreased more quickly than total new business amid declining demand in international markets.

The fall in new orders meant that backlogs of work continued to decrease, while manufacturers responded to reductions in workloads by lowering their employment levels and purchasing activity.

In addition, purchasing activity was likewise reduced for the fourth month running, albeit only marginally at the end of the second quarter. The reduction in input buying and lower new orders led to a drop in stocks of purchases.

Stocks of finished goods also declined as production volumes eased, the second successive month in which this has been the case.

The weak demand environment acted to ease pressure on prices in June. In fact, input costs decreased for the second consecutive month, and at a solid pace that was the sharpest since April 2020. Falling input prices meant that firms had some leeway to reduce their own charges in a bid to stimulate demand. Output prices were down for the third month running, with the latest cut to charges the most pronounced in just over three years.

As well as reducing pressure on prices, the lack of demand throughout the manufacturing sector also led to spare capacity in supply chains. Suppliers’ delivery times shortened to the greatest extent in almost 12 years, and to the second-largest degree since the survey began in March 2011.

The difficulties for firms signalled across a range of the June survey’s indicators meant that business confidence remained relatively muted, despite picking up from May’s six-month low. Manufacturers were still optimistic that output will increase over the coming year, however, amid hopes for a recovery in market demand and the securing of new customers.

Andrew Harker, Economics Director at S&P Global Market Intelligence, said that the latest S&P Global Vietnam Manufacturing PMI paints a bleak picture of conditions in the sector at the end of the second quarter, with a lack of demand the key issue facing firms./.