The headline Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) dropped below the 50 no-change mark in September to 49.5 points, the first such fall in 25 months.

The slide from a reading of 51.3 in August brought an end to a two-year sequence in which the health of the sector had improved continuously, according to a report released on October 1 by Nikkei.

The end of the third quarter of 2015 saw business conditions deteriorating in the Vietnamese manufacturing sector amid declines in both output and new orders. Meanwhile, falling fuel prices led to a sharp decline in overall input costs, which was then passed on by firms to their clients by way of reduced charges.

New orders decreased for the first time in just over a year in September amid deteriorating market conditions. The rate of decline was only slight.

Meanwhile, new export orders fell for the fourth successive month and at the second fastest pace in the series history. Some panelists mentioned particular demand weakness from other countries in the region.

Besides, falling new orders contributed to a slight reduction in manufacturing output, the first in two years. The completion of projects was also mentioned as a factor leading production to decrease.

Commenting on the Vietnamese Manufacturing PMI survey data, Andrew Harker at Markit, which compiles the survey, said after seeing growth slow in recent months, the situation took a turn for the worse in September as the Vietnamese manufacturing sector posted contractions in both new orders and production.

Weak demand in the wider region is proving to have a greater detrimental impact on local manufacturers as time goes on and the latest data are in marked contrast to the strong expansions seen earlier this year.

One positive from the latest PMI survey was further growth of employment, although this may change in coming months if the downwards trends in output and new orders continue. Another point of interest was a sharper decrease in input prices as a number of firms reported seeing their fuel costs fall over the month, the expert said.

With input costs decreasing sharply, manufacturers continued to lower their output prices. Moreover, the rate of decline quickened for the third month in a row to the sharpest since July 2012.

Vietnamese manufacturers lowered their purchasing activity for the first time in 25 months amid reduced production requirements. This enabled suppliers to improve their delivery times again during September, the second successive month in which lead times have shortened.

Reduced purchasing activity contributed to a third consecutive monthly decline in stocks of purchases, and the most marked since March. On the other hand, stocks of finished goods increased, reflective of a drop in sales. The rise was the first in four months.

SGT