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Vietnam’s manufacturing signals marginal improvement in business conditions
Ngoc Thuy 08:07, 2019/10/01
While the Vietnamese manufacturing sector has been one of the best performers globally in recent months, the slowdown in global trade flows amid trade tensions between the US and China is starting to impact firms.
The headline Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) fell to 50.5 in September, signaling only a marginal improvement in business conditions, and the weakest since February 2016, according to Nikkei and IHS Markit. 

A reading below the 50 neutral mark indicates no change from the previous month, while a reading below 50 indicates contractions and above 50 points to an expansion.

A slowdown in new order growth was registered at the end of the third quarter, with the latest modest increase the softest since August 2016. Weaker customer demand was mentioned by a number of respondents. This was also the case in international markets as new export orders rose at a slower pace. 

Weaker growth of new business resulted in a slight fall in manufacturing production, the first since November 2017. 

Staffing levels were also reduced at the end of the third quarter, ending a three-month sequence of job creation. Employee resignations were widely reported to have contributed to the fall. Reduced operating capacity meant that firms were sometimes unable to complete orders during the month, leading to a modest increase in backlogs of work. 

Lower output requirements discouraged input buying in the sector, with the rate of growth in purchasing activity slowing to near-stagnation. Stocks of both purchases and finished goods also increased marginally. 

Price reductions by some suppliers attempting to secure new business meant that the rate of input cost inflation remained muted in September. Input prices rose marginally, and at a much weaker pace than the series average.

Business sentiment deteriorated for the second successive month in September. While firms generally remained optimistic of a rise in production over the coming year, confidence was the lowest since August 2018 and the second-weakest since future expectations data were added to the survey in April 2012. Worries about market demand were behind reduced sentiment, according to respondents.

“The initial signs of a slowdown which we noted last month strengthened during September as demand waned again. Manufacturers responded to softer inflows of new work by bringing the recent period of output growth to an end and showing a reluctance to take on extra staff and purchase inputs. Concerns about demand conditions were also evident in relatively weak sentiment data,“ said Andrew Harker, associate director at IHS Markit, which compiles the survey.

"The latest PMI figures show that while the Vietnamese manufacturing sector has been one of the best performers globally in recent months, the slowdown in global trade flows amid trade tensions between the US and China is starting to impact firms negatively as we enter the final quarter of 2019.”
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