Growth eased in the Vietnamese manufacturing sector during May. — Photo cafef.vn
The Nikkei Vietnam Manufacturing Purchasing Managers' Index (PMI) fell to a 14-month low of 51.6 in May from 54.1 in April, according to a recent report released by Nikkei and IHS Markit.
Although continuing to signal strengthening business conditions in the sector, the rate of improvement was the weakest since March 2016, the report showed.
According to the report, growth eased in the Vietnamese manufacturing sector during May. Much slower rises were recorded in both output and new orders, while the rate of job creation also weakened.
On the price front, the rate of cost inflation continued to slow from March’s recent peak. Slower price pressures, allied with signs of weakening demand, led firms to reduce their output prices for the first time in nine months.
The rate of expansion in Vietnamese manufacturing output slowed to a four-month low in May. While some firms continued to raise production on the back of higher new orders, others reported that a slowdown in the growth of new business led them to reduce output.
As with output, the pace of increase in new orders eased in May. Both the number of new businesses and new export orders rose at much weaker rates than in April.
Signs of slower growth in the sector were also evident in hiring decisions. Employment rose for the 14th successive month, albeit at the weakest pace since July last year. Meanwhile, backlogs of work increased fractionally, following a slight fall in April.
The slowdown in new order growth contributed to a rise in stocks of finished goods during May, as items were held in inventories rather than delivered to clients.
The rate of input cost inflation slowed for the second month running in May and was the weakest since June last year. The rise was also slower than the series’ average, as some panellists mentioned signs of prices easing in the global markets. The delivery times of suppliers continued to lengthen, albeit only modestly, and to the least extent in the current four-month sequence of longer lead times. With cost inflation easing and client demand showing some signs of weakness, manufacturers reduced their output prices. The drop in charges was the first since August 2016.
Purchasing activity continued to rise in May, but the rate of growth slowed for the third month running and was the weakest in nine months. Where input buying rose, panellists mentioned both higher output requirements and inventory building. Stocks of purchases rose accordingly, with the rate of accumulation ticking up from the previous month.
Worries regarding the strength of client demand led to weaker business sentiment. In fact, optimism was the lowest for almost four years and one of the weakest since the series began in April 2012. However, manufacturers still expect output to rise over the coming year, with more than 47 per cent forecasting an expansion.
Andrew Harker, at IHS Markit, which compiles the survey, said: “Growth in the Vietnamese manufacturing sector took a step back during May. Output and new orders each rose at much weaker rates, with firms reducing their pace of job creation accordingly.
He said while all these variables remained in expansion territory, confidence dipped to the lowest in almost four years. This suggests some concern among manufacturers that a soft-patch may be around the corner.
“One factor helping firms in May was a further slowdown in the rate of cost inflation, which provided room for reductions in output prices, as part of efforts to stimulate demand.” — VNS