Vietnam manufacturing index drops amid lower demand

The S&P Global Vietnam Manufacturing Purchasing Managers' Index™ dropped to 46.4 in December 2022 from 47.4 in November, amid deteriorating overseas and domestic demand, said S&P Global.

At below the 50.0 no-change mark for the second month running, the PMI signaled a further deterioration in business conditions in the country's manufacturing sector.

The S&P Global PMI for Vietnam in November was 47.4, down from 50.6 in October and 52.5 in September.

The latest decline was the most marked since the pandemic-related downturn seen in the third quarter of 2021.

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.

"The Vietnamese manufacturing sector continued to struggle in December, in part due to subdued demandconditions in the key export markets of mainland China, the EU and U.S." said Andrew Harker, economics director at S&P GlobalMarket Intelligence.

Manufacturers responded to lower new orders by scaling back production, also for the second consecutive month. Moreover, the rate of contraction was sharp and the most pronounced since September 2021, with the drop in output outpacing that 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, 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.

Vietnam’s index of industrial production (IIP) recorded a 1% fall in December from the previous month, due to a lack of orders, high input material prices, and a shortage of input materials, according to the General Statistics Office.

The country's IIP in 2022 went up 7.8% year-on-year, with a growth of 6.8% recorded in Q1, 9.8% in Q2, 10.9% in Q3, and 3% in Q4.

Vietnam's economy expanded 8.02% in 2022, a record high since 2007 which exceeded the target of 6.5% set by the National Assembly. This is also the highest growth rate in Southeast Asia.

However, the high growth rate in 2022 is partly derived from the low growth base in the two pandemic years 2020-2021, at 2.91% and 2.58% respectively.