The latest Purchasing Managers' Index™ (PMI®) report from S&P Global shows that manufacturers in Vietnam continued to face difficulties during the second quarter due to low demand. Accordingly, output and new orders continued to decline, and production decreased. This is partly due to the lack of electricity due to the recent heat wave.
Weak manufacturing demand has forced companies to reduce staffing and purchasing activities, while prices have also fallen. The lack of workload has helped shorten the supplier's delivery time by the second largest amount ever recorded (since March 2011).
As a result, S&P Global PMI's Manufacturing Purchasing Managers' Index™ (PMI®) for Vietnam's manufacturing industry in June reached 46.2 points, up from 45.3 points in May but still below the threshold of 50 points for the fourth month in a row. According to S&P Global, this shows that the health of Vietnam's manufacturing industry continues to decline.
In the latest survey, businesses cited weak demand the most, and deteriorating market conditions as the main reason for the drop in new orders, the report said. Total new orders fell for the fourth consecutive month, at a sharp but slower rate than in May. New export orders fell faster than total new orders as reduced demand in the international market.
Weak commodity demand led to a further decline in production output. Not only that, but some reports also show that the power shortage caused by the recent heat wave in Vietnam has stunted growth. Accordingly, output decreased in all sectors of consumer goods, intermediate goods and basic investment goods, with a relatively strong decline.
The decrease in the number of new orders caused the backlog to continue to decrease. In the face of that situation, manufacturers have reduced employment and purchasing activity. Accordingly, employment fell for the fourth consecutive month, and the rate of decline was stronger than in May.
Similarly, purchasing activity declined for the fourth consecutive month, although the decline was mild at the end of the second quarter. A drop in input purchases and new orders led to a decrease in purchased inventories. Finished goods inventories also fell as production growth slowed, and this was the second consecutive decline.
The weak demand environment also eased pressure on prices in June. In fact, input costs fell for the second consecutive month, and the rate of decline was the sharpest and fastest since April 2020. Lower input prices make it easier for companies to lower their selling prices to stimulate demand. Output prices fell for the third consecutive month, the most significant drop in more than three years.
Along with the downward pressure on prices, the lack of demand in the manufacturing industry also creates spare capacity in the supply chain. Supplier lead times shortened by the most in nearly 12 years, and the second highest since the survey began in March 2011.
Difficulties for companies are reflected in a series of June survey indicators showing relatively low business confidence, although up from a six-month low in May. However, analysts Manufacturers remain optimistic that output will increase next year in the hope that market demand and the ability to find new customers will recover.
Commenting on the survey results, Mr. Andrew Harker, Chief Economist at S&P Global Market Intelligence, said that Vietnam's manufacturing PMI index gave a bleak picture of business conditions at the end of quarter 2, when a lack of demand was the main problem companies were facing.
"We are also seeing output, new orders, jobs and inventories continue to decline as a result. Electricity shortages in Vietnam due to the heatwave have added to the difficulties for businesses. company," he said.
Prices fell and supplier delivery times shortened to near-record levels in June, according to the chief economist at S&P Global Market Intelligence. These trends are now mostly reflecting weakness in demand and can therefore be viewed as less positive than in recent months.
"Overall, the manufacturing industry needs to boost demand. Therefore, the global manufacturing industry will be closely watched for signs of recovery," Mr. Andrew Harker emphasized.