Vietnam's manufacturing PMI sees sharpest decline since Q3 2021 in Dec

In response to the deterioration, firms in the country scaled back their employment and purchasing activity, while business confidence remained muted. There were some signs of cost inflationary pressures returning, but the latest rise in input prices remained well below those seen earlier in the year, enabling firms to lower charges to customers as part of efforts to secure greater new business volumes, according to a press release by market intelligence company S&P Global.

New orders were down solidly in December, falling for the second month running and to a greater extent than in November. Generally weak demand conditions were highlighted, with a number of key export markets mentioned as sources of weakness. These included Mainland China, the European Union, and the US, with this weakness leading to a second successive reduction in new export orders.

Manufacturers responded to lower new orders by scaling back production, also for the second month running. Moreover, the rate of contraction was sharp and the most pronounced since September 2021, with the drop in output outpacing that was seen for new orders. As a result, backlogs of work ticked higher, ending a four-month sequence of depletion.

With production requirements falling amid lower new orders, firms reduced their staffing levels accordingly. Employment decreased at a marked pace, and one that was the sharpest in 14 months. Manufacturers also cut their input buying, but stocks of purchases accumulated for the first time in three months as output fell to such an extent that inputs were often held in stock rather than being used in the production process. The steep drop in output meanwhile contributed to a reduction in stocks of finished goods.

Input costs increased at the fastest pace in five months, albeit one that was still relatively modest and much slower than seen earlier in the year. The S&P Global Vietnam Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. Where input prices rose, panellists mentioned higher costs for raw materials, gas, and shipping. Meanwhile, suppliers’ delivery times lengthened for the second month running, but only marginally.

With cost inflation relatively muted, firms were able to lower their selling prices for a second successive month as part of attempts to boost customer demand. After having dropped to a 14-month low in November, confidence in the year-ahead outlook for production remained relatively muted in December, despite improving slightly.

Some panellists were concerned that challenging market conditions would persist during 2023. On the other hand, a number of respondents expressed optimism that demand will recover, leading to growth of new orders and output, added S&P Global.

Andrew Harker, economics director at S&P Global Market Intelligence, said: “The Vietnamese manufacturing sector continued to struggle in December, in part due to subdued demand conditions in the key export markets of Mainland China, the EU, and the US. Securing new work is likely to remain difficult until there is a pick-up in these markets, with a number of firms indicating that they expect demand to remain subdued in the near-term at least.

“Manufacturers have responded quickly to the downturn in new orders, with the latest PMI data showing sharper reductions in output, employment, and purchasing activity, as well as price cuts to try and stimulate demand. S&P Global Market Intelligence is predicting a rise of 6.8 per cent in industrial production for 2023, which would represent a slowdown from 2022.”

ALCHEMPro News Desk (NB)