Viet Nam's manufacturing sector continued to decline in July.—Photo baoxaydung

HCM CITY (Biz Hub)— Viet Nam's manufacturing sector continued to decline in July, albeit at a slower pace, HSBC said in a report released yesterday.

Output and new orders fell at weaker rates and employment was unchanged, it said.

The seasonally adjusted Purchasing Managers' Index registered 48.5 in July, an improvement on June's 46.4, but, by remaining below the no-change mark of 50, it signalled a third successive monthly contraction of the manufacturing sector.

Output and new orders both continued to fall in July, but at slower rates, reflecting soft underlying market conditions, and weakened purchasing power.

The net decline in new orders was partly driven by a decline in new business from abroad as new export orders fell for a second successive month and at the fastest rate since the start of the year.

Excess production was used to build inventories, with stocks of finished goods rising at the sharpest pace since June last year. Inventories have now risen for two months in a row.

On the employment front, Vietnamese manufacturers left staffing levels unchanged during July following two months of contraction.

While some respondents added to payroll numbers to help bolster production, others responded to reduced new orders by cutting staff levels.

Prices were cut further in July, the fourth month in succession that a net fall has been observed.

Discounts were reported to reflect intensifying market competition and efforts to stimulate sales. There was some evidence that prices were reduced to help clear excess inventories.

In contrast, costs continued to rise. Inflation has now been registered for seven months in a row, with a limited supply of inputs reported to have pushed up prices. There was also evidence that a stronger US dollar raised import costs.

Trinh Nguyen, Asia Economist at HSBC, said: "The further deterioration of Viet Nam manufacturing activity reflects both weak domestic and external conditions.

"The SBV recently reduced the OMO rate by 50 basis points to ease liquidity conditions.

"But that is likely a stop-gap solution as fundamental reforms are required to resolve Viet Nam's credit challenges."

The HSBC Vietnam Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchase executives at around 400 manufacturing companies. —VNS