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Vietnam’s manufacturing industry experiencing a sharp decline

Vietnam’s manufacturing industry experiencing a sharp decline

Saturday 10, 06 2023
Vietnam's manufacturing industry continued to decline in May, with output and new orders falling sharply, leading to a reduction in employment.

Decline in business conditions

Vietnam Purchasing Managers Index (PMI) by S&P Global fell to 45.3 in May from 46.7 in April, which signaled the third consecutive month of decline in business conditions.

Vietnamcredit Vietnam Purchasing Managers Index

Moreover, this decrease in the health of the manufacturing industry is the most significant since September 2021.

There were multiple reports of weak demand from customers in the latest survey. The effect of this can be felt most clearly with the number of new orders as the index has fallen rapidly at the largest rate in 20 months.

Difficulties in maintaining revenue were also recorded in export markets, as new orders from abroad fell for the third consecutive month.

Vietnamcredit Vietnam Purchasing Managers Index

Prolonged recession

Andrew Harker, chief economist at S&P Global Market Intelligence, commented that “The sharp drop in new orders in May is a cause for concern that Vietnam's manufacturing industry may experience a prolonged recession, not just a temporary phase of decline.”

Companies have responded by reducing both output, employment and purchasing activity, he added.

The weakness in demand continued to weigh on business confidence, as the index fell for a third straight month, becoming its weakest since November last year.

Any remaining optimism is often based on hopes that the manufacturing recovery will take place in the coming months.

Mr. Andrew Harker said that the upcoming data will play an important role in giving any signal of improvement.

Vietnamcredit PMI survey

PMI survey results show that more companies reduce the number of employees due to reduced workload. This, plus a number of voluntary layoffs, led to a further decline in employment in May, although the magnitude of the decline was milder than in the previous survey.

Manufacturers have reduced purchasing activity at a significant rate, thereby extending the current reduction period to three months. Inventories of purchased goods also fell, and the magnitude of the decline was the largest in nearly two years.

Inventories of finished goods also fell, as companies adjusted production to accommodate a drop in new orders. This is the first drop in three months.

Weak demand also causes suppliers to cut prices. As a result, input costs fell for the first time in three years. Falling input prices have made it easier for companies to lower their selling prices in an effort to boost demand. Selling prices fell for the second consecutive month, and the rate of decline was almost the same as the previous survey period.

Source: S&P Global, theleader

Compiled by VietnamCredit


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