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Wednesday, October 27, 2021

Vietnamese manufacturing sector continues to deteriorate in September

The Saigon Times

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HCMC – The Vietnamese manufacturing sector saw a further sharp fall in production in September as the sector continued to be severely impacted by the current wave of the Covid-19 pandemic in the country and the restrictions put in place to contain the spread of the virus, according to the latest report of IHS Markit.

New orders were also down sharply and the rate of decline in staffing levels accelerated. The sustained period of restricted production led to a record rise in backlogs of work.

Meanwhile, travel restrictions and ongoing international supply chain disruptions resulted in the worst delays for the receipt of inputs on record and contributed to a further sharp increase in input costs.

At 40.2 in September, the Vietnam Manufacturing Purchasing Managers’ Index (PMI) signaled a further marked deterioration in business conditions across the sector.

Temporary business closures, transportation difficulties and staff shortages all contributed to a fourth successive reduction in manufacturing output in Vietnam.

New orders also fell sharply, and to the greatest extent since April 2020. Alongside a sharp reduction in domestic new business, firms pointed to a much sharper reduction in new export orders than that seen in August. 

Employment levels decreased at the sharpest pace since the survey began in March 2011. Some respondents reported that employees had resigned due to a lack of work, while others scaled back staffing levels amid pauses in production.

The sustained period of restrictions on output and sharply falling staffing levels led to a surge in backlogs of work.

Besides lowering staffing levels, manufacturers also reduced their purchasing activity in response to lower production requirements. Meanwhile, supply-chain delays intensified, with lead times lengthening at a new record pace for the third consecutive month.

Issues with the supply of raw materials contributed to further upward pressure on purchase prices, while there were widespread reports of higher transportation costs. As a result, input prices continued to rise sharply, with the rate of inflation slightly faster than in August. 

On the other hand, selling prices rose only slightly, and at the weakest pace since June. Firms indicated that weak demand meant they offered discounts in order to try to secure sales.

Restricted production volumes impacted inventory holdings. Inventories of purchases rose as inputs were kept in stock rather than being used in production. In turn, falling output meant that stocks of finished goods continued to decrease. 

Firms generally expect output to recover over the coming year, with production set to start rising during the final quarter of 2021 should the pandemic be brought under control and restrictions lifted. Business sentiment picked up from the 15-month low seen in August, but remained relatively muted.

“On a more positive note, there are signs that the latest wave of the pandemic has peaked and vaccination programs are making good progress. If cases continue to decline and restrictions are eased, firms should be able to see growth resume over the final quarter of the year,” said Andrew Harker, Economics Director at IHS Markit.

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