Vietnam sees tepid manufacturing expansion

The purchasing managers index (PMI), an indicator of the economic health of the manufacturing sector, was boosted by faster growth of new orders and employment and a further expansion of production volumes, reported a HSBC Vietnam survey issued May 2.

Manufacturing output rose for the second successive month during April, albeit at a slightly slower pace than in March. According to the report, higher output reflected a further increase in incoming new orders, as companies reported improved sales to domestic clients. Meanwhile, subdued international market conditions meant that the level of new export business showed only a negligible increase compared to one month earlier.

Manufacturing employment also rose for the second consecutive month during the latest survey period, with jobs growth linked to the recent mild recoveries in production and new order volumes.

April data pointed to a further solid decrease in work-in-hand, but not yet completed, volumes. A number of firms reported that they had satisfied existing contracts from stock holdings to clear backlogs of work. Stocks of finished goods were depleted for the sixth month running.

Average input costs increased again during April, with manufacturers reporting that they were paying higher prices in both domestic and world markets. Purchasing costs have risen in each of the past four months, although the rate of increase during the latest survey period was milder than in March, according to the HSBC report, which was compiled by global financial information services company Markit.

Vietnam manufacturers reported that competitive market conditions restricted their ability to pass on rising costs to their clients. Subsequently, average output prices declined for the first time in three months, with the rate of decrease the sharpest since last December.

HSBC and Markit added that stocks of purchases declined again in April, meaning that inventories have fallen throughout the past one-and-a-half years. This was despite a solid increase in input buying volumes, which was initiated in part to reduce the pressure on raw material stocks.

Trinh Nguyen, Asia economist at HSBC, said: “The expansion of manufacturing activity reflects a gradual improvement of domestic demand. The manufacturing sector continues to see growth, as indicated by the rise in employment and output.

“While the economy is weighed down by underperformance of the state sector, the private sector, especially the manufacturing industry, continues to pull its weight to sustain the economy. The year-to-date increase of foreign investment into manufacturing shows Vietnam's still-strong competitiveness in labour-intensive manufacturing,” she added.