Sustained drop in new orders amid weak demand in Vietnam: S&P

Manufacturers in Vietnam continued to struggle in the face of weak market demand as the second quarter drew to a close, with both output and new orders falling again in June, S&P Global said on Monday.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) posted below the 50.0 no-change mark for the fourth month running in June, signaling a sustained deterioration in the health of the sector. At 46.2 in June, up from 45.3 in May, the latest reading pointed to a steady decline in operating conditions.

Weak global demand led firms to scale back their staffing levels and purchasing activity, while prices decreased. A lack of pressure on capacity resulted in the second-largest shortening of suppliers' delivery times on record - since March 2011 - the rating agency said.

Reports of weak demand were prevalent throughout the agency’s latest survey, with deteriorating market conditions the primary cause of the latest fall in new orders. Total new business was down for the fourth successive month, and at a solid pace which was nonetheless much softer than that seen in May. New export orders decreased more quickly than total new business amid declining demand in international markets.

“The latest S&P Global Vietnam Manufacturing PMI paints a bleak picture of conditions in the sector at the end of the second quarter, with a lack of demand as the key issue facing firms. We are now seeing sustained reductions in output, new orders, employment and inventories as a result. Power outages in Vietnam due to the heatwave added to firms' problems," Andrew Harker, economics director at S&P Global Market Intelligence, said in a release.

“Meanwhile, prices are falling and suppliers' delivery times shortened to a near record extent in June. While some easing of the severe price and supply pressures seen in recent years was required, these trends are now largely reflective of demand weakness and so are likely to be looked upon less positively than had been the case in recent months.”

He noted: "All in all, the sector is in need of a demand boost, and so developments in the global manufacturing sector will be watched closely for signs of revival."

Weak demand acted to ease pressure on prices in June, said S&P Global. In fact, input costs decreased for the second consecutive month, and at a pace that was the sharpest since April 2020. Falling input prices meant that firms had some leeway to reduce their own charges in a bid to stimulate demand. Output prices were down for the third month running, with the latest cut to charges the most pronounced in just over three years.

Vietnam’s index of industrial production (IIP) showed signs of recovery with year-on-year growth of 2.8% in June, but fell 1.2% year-on-year in the first six months of this year, the country’s General Statistics Office (GSO) announced last Thursday.

The index went up 2% from May to June and 2.2% from April to May.

The Vietnamese economy expanded by 4.14% in the second quarter from a year ago despite slowing global demand for imports, picking up from slow growth of 3.31% in the first quarter. In the first half of 2023, the economy grew by 3.72% year-on-year, the GSO said. The industrial manufacturing sector rose by 0.44% in the six months, while the retail and service sector soared by 10.9%.

For ASEAN, S&P Global said in another statement on Monday that the region’s manufacturing conditions improved mildly in June, with both production and new orders expanding.

However, trends diverged as growth in manufacturing production softened to a six-month low, while factory orders expanded at a slightly quicker rate. At the same time, average lead times for inputs shortened again at the end of the second quarter, while inflationary pressures eased further.

The headline S&P Global ASEAN Manufacturing Purchasing Managers’ Index posted 51.0 in June, down from 51.1 in May. The headline figure has now fallen for two consecutive months, with the latest reading signaling the least marked improvement in operating conditions since March.

Data broken down by country indicated that five of the seven ASEAN constituents monitored by the survey reported stronger business conditions in June. Leading the upturn was Thailand, said the agency.

Though solid (PMI at 53.2), Thailand’s rate of growth slipped further from April’s record high, signaling a much softer expansion during June. Clustered together, growth across Singapore (52.7) and Indonesia (52.5) was modest overall.

In line with the softer uptick in output, manufacturing firms in ASEAN raised their buying activities at the slowest rate in five months. In terms of inventories, firms continued to build stocks of raw materials and semi-finished goods for the third straight month. However, post-production inventories were depleted for the second consecutive month, albeit only fractionally.

S&P Global noted that despite the sector’s overall positive performance, ASEAN manufacturing firms failed to raise employment for the fourth consecutive month. The rate of job shedding remained marginal, however, and was similar to those recorded in the three prior months.