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VietNamNews

Industry index hits three-month low

Update: June, 04/2012 - 10:08

HCM CITY — The HSBC Viet Nam Manufacturing Purchasing Managers Index (PMI) dropped to 48.3 per cent in May from April's 49.5, its lowest level in three months.

The latest reading was one index point lower than the average (49.3) since the survey began in April 2011.

This points to a moderate deterioration of overall business conditions, and extends the current period of decline to two months, according to the bank's monthly report.

The PMI is a composite index based on five of the individual indexes of new orders, output, employment, suppliers' delivery times and stock of items purchased.

It is based on data compiled from monthly replies to questionnaires sent to purchasing executives at about 400 manufacturing companies in Viet Nam.

Data in May indicated a sharper decline in output levels than in the previous month, which survey respondents linked to less favourable economic conditions and an associated reduction in new business intakes.

Manufacturers reported a moderate decline in new order volumes during May, which represented the first decrease for three months.

The trend in new export business was more resilient than for overall new work, with stronger demand from China helping offset weaker spending among clients in Japan and Europe.

The latest survey, however, still pointed to a marginal overall drop in new export work, which was the first reduction since January.

Manufacturers in Viet Nam indicated that a marginal rate of net jobs growth was maintained in May, which extended the current period of employment growth to three months.

Survey respondents mostly attributed this to longer-term expansion plans at their units.

Higher staffing levels in turn contributed to a moderate decline in work-in-hand (but not yet completed).

Lower backlogs have now been recorded in seven of the past eight months, reflecting increased operating capacity and, in some cases, relatively subdued new order inflows.

Lower production volumes and a return to new business contraction led to tighter inventory policies in May.

Latest data highlighted falls in both input stocks and post-production inventories, although in each case the rates of decline were only marginal.

Meanwhile, purchasing activity declined for the second month running and at the sharpest pace since February.

In line with lower input buying, manufacturers indicated shorter delivery times from suppliers for the 13th successive month.

Input price inflation, meanwhile, remained robust in May, which stretched the current period of rising cost burden to four months.

The latest increase in input prices, however, was the slowest seen over this period.

Companies that reported a rise in their cost burdens generally attributed it to increased oil-related prices.

Nonetheless, output charges in the manufacturing sector fell in May for the first time since January, with firms mostly linking price-discounting to strong competition for new work.

Commenting on the Viet Nam Manufacturing PMI survey, Trinh Nguyen, Asia Economist at HSBC, said: "The decline in manufacturing activities in May reflects the continued weakening conditions of domestic demand in Viet Nam. Credit contracted in the first quarter, reflecting Viet Nam's tough operating conditions."

"Businesses are either unable to access loans due to high interest rates or lack the collateral to get credit. With inflation easing to single digits, as reflected in the slowing of input costs, the SBV cut policy rates by 1 per cent on May 28 to support businesses," she said. — VNS

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