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Vietnam’s manufacturing sector sees mild contraction in October

By Dat Thanh

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HCMC – Vietnam’s manufacturing sector experienced a slight decline in October, as producers continued to reduce production despite a modest improvement in new orders, according to data from the S&P Global Vietnam Manufacturing Purchasing Managers’ Index (PMI)

The PMI for October came in at 49.6, down from September’s 49.7, indicating the second consecutive monthly fall.

Manufacturing output contracted for the second consecutive month, though some firms increased production in response to order growth. Overall, firms managed to meet customer demands without significantly expanding their output.

“PMI data at the start of the final quarter of 2023 showed little change from the end of the third quarter, with new orders rising modestly but not enough to prompt firms to increase production,” said Andrew Harker, economics director at S&P Global Market Intelligence. Instead, manufacturers drew down inventories of finished goods to meet demand.

New orders rose marginally for the third consecutive month. However, the rate of growth was modest and the weakest in the recent expansion sequence. Clients appeared hesitant about committing to new orders.

Employment remained relatively stable, ending a seven-month period of job cuts. Firms that expanded their workforce did so in response to higher new orders and expressed optimism about future production.

Manufacturers were able to reduce their backlogs of work significantly in October, with the rate of depletion being the strongest since June 2021.

“The employment front showed some positive signs, with job cuts coming to an end after seven months. This, combined with rising purchasing activity and positive sentiment, suggests that firms are becoming more confident that recent improvements in demand will continue in the coming months,” noted Harker.

However, inflationary pressures intensified, with input costs and output prices rising at their sharpest rates in eight months. Rising oil prices and a depreciation of the dong against the U.S. dollar contributed to increased input costs, prompting firms to raise their selling prices.

Also, purchasing activity continued to rise for the third consecutive month as manufacturers aimed to build reserves of inputs ahead of expected production increases. This often led to a reduction in purchase inventories. Finished goods inventories decreased slightly, reflecting the preference to use existing inventory to fulfill new orders.

Suppliers’ delivery times improved, but at the slowest pace since April, signaling continued spare capacity among vendors.

The S&P Global Vietnam Manufacturing PMI is a monthly index that measures the performance of the Vietnamese manufacturing sector. It is compiled from responses to questionnaires sent to purchasing managers at some 400 Vietnamese manufacturing companies.

The index ranges from 0 to 100, with a reading above 50 indicating an expansion in the sector compared to the previous month, and a reading below 50 indicating a contraction.

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