June 02, 2023 | 09:20 GMT+7

PMI falls further in May as global demand worsens

Mạnh Đức -

Manufacturing Purchasing Managers’ Index (PMI) down to 45.3, S&P report shows.

Vietnam’s manufacturing sector moved further into contraction territory in May as the demand climate worsened again, according to an S&P global report released on June 1.

The country’s Manufacturing Purchasing Managers’ Index (PMI) dropped to 45.3 in May from 46.7 in April, signaling a third successive monthly deterioration in operating conditions.

Sharper falls in output and new orders were recorded, with firms scaling back their employment and purchasing activity accordingly. Meanwhile, business confidence continued to weaken.

There was further evidence of an easing of price pressures in the sector. Input costs decreased for the first time in three years, meaning that manufacturers were able to reduce their own selling prices in order to try to stimulate demand.

There were widespread reports of customer demand weakness across the latest survey. The impact of this was most clearly felt with regard to new orders, which declined rapidly and to the greatest extent in 20 months. Difficulties in securing sales were also evident in export markets, with new business from abroad decreasing for the third month running.

With new orders continuing to fall, firms also reduced output midway through the second quarter of the year. Production was down for the third successive month, and at a marked pace that was the fastest since January. Output decreased across each of the three broad categories of manufacturing, with the sharpest decline seen at intermediate goods producers.

The report also shows that demand weakness caused a further hit to business confidence, which dropped for the third month in a row to the weakest since last November. Any lingering optimism was often due to hopes that a recovery would get underway in the sector in the coming months.

Some firms responded to lower workloads by cutting staffing levels. This, added to some reports of voluntary resignations, meant that employment decreased again in May, albeit to a lesser extent than seen in the previous survey period.

Though firms reduced their operating capacity, they were still able to make substantial inroads into their backlogs of work in May. Outstanding business decreased at the sharpest pace since June 2021.

Manufacturers cut their purchasing activity at a marked pace, extending the current sequence of reduction to three months. In turn, stocks of purchases also decreased, and to the greatest extent in just under two years. Stocks of finished goods were also down as firms adapted production to lower new orders. The fall was the first in three months

Reduced demand for inputs continued to mean a lack of pressure on supply chains. As a result, vendor performance improved for the fifth month running, and to the joint-largest extent since February 2015.

Waning demand also led suppliers to reduce their prices. Input costs decreased for the first time in three years as a result. The drop in input prices provided some leeway for firms to reduce their own charges in a bid to boost demand. Selling prices decreased for the second month running, and at a broadly similar pace to the previous survey period.

“The steepening decline in new orders during May is cause for concern as it suggests that the Vietnamese manufacturing sector may be in for a lengthy downturn rather than a transitory soft-patch,” said Mr. Andrew Harker, Economics Director at S&P Global Market Intelligence. “Firms responded accordingly, lowering their output and scaling back both employment and purchasing activity.”

“Waning demand for inputs has relieved any lingering pressure on capacity in supply chains, such that we are now seeing shorter delivery times and falling input costs,” he continued. “While confidence continued to fade in May, there were still some hopes among firms that a recovery will get underway in the months ahead. The coming data will therefore be key in providing any signals of improvement.”

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