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Vietnam Today

PMI eases, still highest in ASEAN

Released at: 10:32, 04/09/2018

PMI eases, still highest in ASEAN

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Latest reading of 53.7 in August down from 54.9 in July and points to weakest improvement in operating conditions in four months.

by Minh Do

The Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) - a composite single-figure indicator of manufacturing performance - posted 53.7 in August, signaling a further solid improvement in business conditions. The health of the sector has now strengthened for 33 successive months. That said, the latest reading was down from 54.9 in July and pointed to the weakest improvement in operating conditions in four months.

Vietnam’s manufacturing sector continued to grow solidly during the month, supported by a further sharp increase in new orders. There were some signs of rates of expansion easing, however, with output and employment rising more slowly than in July. Meanwhile, confidence dropped sharply and was the lowest in the series so far. On the price front, both input costs and output prices increased at weaker rates.

“Though seeing a slowdown in growth of output in August, Vietnam’s manufacturing sector appears to be on a sound footing at present thanks to an ability to continue to secure strong inflows of new work,” said Mr. Andrew Harker, Associate Director at IHS Markit, which compiles the PMI. “That said, business confidence dropped to the lowest since the series began in early-2012, suggesting that concerns around global trade flows may start to impact Vietnamese firms over the coming months.”

Vietnam continued to lead ASEAN in the PMI rankings for August, despite a slower improvement in its goods-producing sector. The Philippines and Indonesia were tied in second place, with both registering a quicker pace of growth. Malaysia registered the first improvement for seven months, coming in third with a modest improvement in operating conditions.

Vietnamese manufacturers continued to record growth in new orders during August. Though the rate of expansion eased, it remained sharp amid reports of improving client demand. New export orders also rose again over the course of the month, but to a lesser extent than total new business. Meanwhile, backlogs of work decreased marginally for the third month running.

Continued strong growth in new orders resulted in a further monthly increase in manufacturing production. August’s rise in output was solid but the slowest since April.

A slowdown in employment growth was also registered, with the rate of job creation in August much weaker than June’s record high. Where staffing levels increased, this was linked by panelists to rising workloads. Employment has risen continuously on a monthly basis for almost two-and-a-half years.

The rate of expansion in purchasing activity remained strong in August as firms responded to higher new orders and planned for future growth in production. Efforts to build inventories were generally successful. Stocks of purchases rose for the fifth month running, and at the fastest pace since February. Stocks of finished goods also increased, for the second consecutive month.

Input prices continued to rise sharply, albeit at a reduced rate. Where input costs increased, this was linked to higher raw material prices and a depreciation of the Vietnam dong against the US dollar. Rising input costs fed through to an increase in output prices. That said, the rate of inflation eased to a three-month low amid competitive pressures.

A lack of raw materials contributed to longer supplier delivery times in August, following no change in lead times in the previous month.

Despite remaining optimistic overall, Vietnamese manufacturers recorded a marked drop in confidence during August, with sentiment the lowest since the series began in April 2012. According to respondents, positive sentiment reflected expectations of improving demand and higher new orders.

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