Vietnam manufacturing downturn continues at start early fourth quarter

Manufacturers reported further declines in output and new orders, as demand weakened on the back of a subdued domestic market and reduced global trade flows.

Production fell for the seventh month in a row, although the pace of contraction remained marginal overall. New orders and new export business both fell for the sixth consecutive month.

The decline in new export orders was the steepest in the survey history, as companies reported reduced demand from clients in China, Japan and Taiwan.

The downturn in the sector continued to influence levels of purchasing activity and inventory holdings during October.

Reduced production requirements meant that input buying volumes were cut back sharply and to a greater extent than during the prior survey period.

Stocks of purchases subsequently fell for the twelfth month running and at the fastest pace since July.

Inventories of finished goods were broadly unchanged for the fourth straight month.

October data were consistent with a further squeeze on manufacturers’ operating margins, as input costs continued to rise at a time of reduced pricing power.

Average purchase prices rose for the third month in a row, reflecting higher costs for foodstuffs, fuels and transportation. Meanwhile, average output prices fell for the sixth straight month.

The pace of charge deflation remained solid, but was noticeably less marked than the severe rates seen during June and July of this year.  

Commenting on the Vietnam Manufacturing PMI survey, Trinh Nguyen, Asia Economist at HSBC said: “Weak global and domestic demand continues to weigh on the manufacturing sector, new export orders contracted at the sharpest pace since the series began.

The rise of input costs did not help, as manufacturers could not pass off the costs to consumers due to sluggish demand. The output index level, although still signaling contraction, is stabilising at close to fifty suggesting that the economy will likely recover towards the end of  the fourth quarter of 2012”.