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Manufacturing health bounces but inflation a worry

Update: February, 02/2013 - 10:19

 

A ChauA Industry Joint Stock Co worker makes glass frames. — VNA/VNS Photo Danh Lam
HCM CITY (VNS)— At 50.1 in January, up from 49.3 in December, the seasonally adjusted HSBC Vietnam Manufacturing PMI edged back above the 50.0 no-change mark, according to the bank's report released yesterday.

The Purchasing Managers' Index is an indicator of the economic health of the manufacturing sector.

Although the headline index was consistent with a broad stagnation of the manufacturing sector, it was nonetheless above its series average of 48.9.

Manufacturing production increased for the third successive month in January as companies benefited from a modest improvement in new order volumes from the domestic market.

Overseas demand remained lacklustre, however, leading to a further solid decrease in new export orders. Vietnamese manufacturers reported lower levels of new work from the euro-zone and to a lesser extent China. There were also reports linking weaker export volumes to subdued global market conditions.

January data signalled further marginal jobs growth in the Vietnamese manufacturing sector. Payroll numbers have now increased in each of the past four months, generally in response to the recent modest upturn in production volumes. Spare capacity remained, however, leading to a further reduction in backlogs of work.

January saw a solid increase in average input prices, a marked turnaround from the marginal reduction signaled in the previous month. Higher purchase prices were linked to increased costs of raw materials and transportation. There were also reports of higher prices paid for imported goods, materials and services.

Faltering demand and strong competition continued to erode the pricing power of Vietnamese manufacturers. Output prices fell for the ninth month running. The rate of decline eased sharply, however, as a number of companies passed on higher raw material costs to their clients.

Vietnamese manufacturers maintained a preference for leaner inventory holdings during January. This was highlighted by further depletion of both raw materials and finished goods stocks. The decline in inventories of finished products was the steepest in the 22-month series history.

Purchasing activity was raised for the second time in the past three months during January, partly to reduce the pressure on input stocks. The recent increases in input buying are in contrast to the marked declines signaled during the middle of last year.

Commenting on the Vietnam Manufacturing PMI survey, Trinh Nguyen, Asia Economist at HSBC said: "The expansion of the manufacturing sector in January points to a gradual recovery of the economy, although the process is still quite a bumpy one. Improved domestic demand lifted the output level while external demand remains sluggish, primarily dragged down by weak growth from the EU. The significant rise of input prices, however, poses a risk to the sector as it raises costs for producers."

"We expect the recovery of the economy to continue into 2013, supporting higher growth this year than the previous year, although the economy will still be below trend as it undergoes a restructure. Inflation is a concern as it is trending up due to an unfavourable base effect, the Chinese recovery and an increase in domestic demand," she said.

The HSBC Vietnam Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives from around 400 manufacturing companies. — VNS

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