The latest reading signalled a fifth successive monthly deterioration in operating conditions, albeit one that was only modest and the weakest in this sequence.

Andrew Harker, Economics Director at S&P Global Market Intelligence, said “The Vietnamese manufacturing sector remained under pressure in July, according to the latest PMI data, with firms again struggling to secure new business and scaling back output accordingly. Despite the latest drop in production, firms were still left with unsold stock, however”.

“Meanwhile, there were again falls in prices and a shortening of suppliers' delivery times amid widespread spare capacity in the sector. "On a more positive note, there were signs that demand may be stabilising as new orders fell at the softest pace in five months. Firms will be hoping that this may feed through to renewed growth of orders in the months ahead", he added.

Slower reductions in output, new orders and employment

The opening month of the third quarter of the year showed that the Vietnamese manufacturing sector remained in contraction territory but showed some signs of stabilization,

Softer declines were seen in output, new orders and employment, while business confidence picked up. That said, the subdued business environment meant that inventories of unsold products and unused inputs built up in July. Meanwhile, prices continued to fall and supplier lead times shortened.

The trend in the headline index was matched by a number of the survey's sub-indices in July, with rates of contraction in output, new orders and employment either the weakest or joint-weakest in the respective sequences of reduction which stretch back to March in all cases. In particular, new orders decreased only marginally in July amid some signs of demand stabilising.

That said, manufacturers signalled that demand remained subdued overall, particularly in export markets. Highlighting the particular weakness internationally, new export orders fell much more quickly than total new business. Some firms pointed to declines in new orders from European customers.

With new orders still declining, firms scaled back production again in July, although the alleviation of the problem of power outages which were prevalent in June contributed to the pace of contraction softening since the previous survey period. Lower new orders meant that backlogs of work continued to fall in July, with the rate of depletion accelerating from that seen in June

Inventory holdings accumulate

Meanwhile, there were signs that the demand weakness across the sector contributed to an unwanted build-up of inventory holdings. Stocks of finished goods rose for the first time in three months amid difficulties selling products, while stocks of inputs accumulated for the first time in the year-to-date as production was scaled back. The increase in stocks of purchases was recorded despite a fifth successive monthly decline in purchasing activity.

Manufacturers also lowered employment for the fifth month in a row, but at a modest pace. A lack of demand for inputs was the main factor behind a further marked shortening of suppliers' delivery times, while there were continued reports of reduced shipping disruption helping to speed up deliveries.

Input costs and selling prices fall further

Although less pronounced than that seen in June, the latest shortening of lead times was still among the largest on record. Input costs decreased for the third consecutive month as suppliers responded to a lack of demand by offering discounts. In turn, Vietnamese manufacturers lowered their own selling prices as part of efforts to stimulate demand, and to a greater extent than seen for input costs. The solid reduction in charges was broadly in line with that seen in the previous survey period.

Business confidence picked up to a four-month high in July, but remained relatively muted. Firms hope that an eventual recovery in customer demand will feed through to renewed production growth, but remained concerned by the current challenges in securing new business.

Source: VOV