Vietnam’s Manufacturing Purchasing Managers’ Index (PMI), which gauges the country’s manufacturing performance, dropped from 54.1 in April to 51.6 in May, marking the weakest rate of improvement since March 2016.

The rate of expansion in Vietnam’s manufacturing output slowed to a fourteen-month low in May, according to a joint report released by Nikkei and Markit on June 1. 

While some firms continued to raise production on the back of higher new orders, others reported that a slowdown in growth of new business led them to reduce output.

The pace of increase in new orders eased in May. 

Both total new business and new export orders rose at much weaker rates than in April. 

Signs of slower growth in the sector were also evident with regard to hiring decisions.

Employment rose for the fourteenth 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 panelists mentioned signs of prices easing in global markets, the report noted.

Suppliers’ delivery times 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 fall 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.

In addition, concerns around the strength of client demand fed through to weaker business sentiment. 

Optimism was the lowest for almost four years and among the weakest since data began to be collected in April 2012. 

That said, manufacturers still expect output to rise over the coming year, with more than 47 per cent forecasting an expansion.

“Growth in the Vietnamese manufacturing sector took a step back during May,” said Mr. Andrew Harker from IHS Markit, which compiles the survey. 

“Output and new orders each rose at much weaker rates, with firms reducing their pace of job creation accordingly. 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.”

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, Mr. Harker added.

VN Economic Times