Vietnam's Manufacturing Sector Posts Slower Increases in Output and New Orders

The Vietnamese manufacturing sector continued to improve at the start of the second half of the year, although there were further signs of growth easing as both output and new orders increased at weaker rates than in the previous month, according to the HSBC Purchasing Managers’ Index.

“The manufacturing sector expanded in July, although the pace slowed due to weaker output growth," said Trinh Nguyen, Asia Economist at HSBC. "Employment and new export orders rose, reflecting strong production requirements and improving external demand."

The rate of cost inflation remained sharp amid higher fuel prices and increased transport costs as a result of the enforcement of tonnage rules on trucks. This also continued to impact suppliers' delivery times.

The PMI posted above the no-change mark of 50.0 again in July, the eleventh month running in which that has been the case. However, falling to 51.7 from 52.3 in June, the rate of improvement signalled was the weakest in four months.

Manufacturing production increased for the tenth month running in July, albeit only slightly as the rate of expansion slowed to the weakest in the current sequence of growth.

Higher new orders contributed to the increase in output, but some firms noted that weaker growth of new business and difficulties in retaining staff had prevented a stronger rise in production.

As was the case with output, the rate of growth in new orders slowed in July and was the weakest since February. Where new business increased, this was linked by panelists to stronger client demand. New export orders also increased, and at a modest pace.

A weaker rise in total new orders enabled firms to deplete outstanding business in July. Backlogs decreased for the third month in a row and at the sharpest pace since February.

Higher production requirements led companies to increase their employment and purchasing activity. Staffing levels increased at a modest pace, albeit one that was faster than seen in the previous month.

"Employment and new export orders rose, reflecting strong production requirements and improving external demand," says Nguyen. "We expect new export orders and employment to continue to rise in the coming months."

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