Business
Manufacturing sector undergoes third consecutive fall
  • | VOV | June 04, 2023 11:00 AM
May witnessed Vietnam manufacturing sector continue on a declining trajectory, with economists and industry insiders outlining that weak demand is a major contributor to this, according to a report published on June 1 by S&P Global.

They noted that output and the number of new orders has decreased sharply with companies seeking to cut jobs and reduce purchases.



Illustrative photo

The report said that the Southeast Asian economy's Purchasing Managers' Index (PMI) was reported to have fallen to 45.3 in May from 46.7 in April. It marked the third consecutive month of decline and the largest drop since September, 2021.

S&P Global stated that global demand for goods and services has remained weak, resulting in a significant drop in new orders. Revenue from export markets has also suffered for the third consecutive month.

Meanwhile, companies have taken a score of measures as they seek to scale down production since the beginning of Q2, most notably in intermediate goods manufacturing. Weak demand has been hurting business confidence with the country’s PMI at its lowest level since November last year.

However, it has given companies time to address some backlog orders from previous months.

Despite companies seeking to reduce their operational capacity, they were able to tackle a significant portion of the backlog of work in May. The amount of unfinished work has decreased at the fastest pace since June, 2021.

As production decreased, companies have been reducing both purchasing activities and inventory, marking the sharpest decline in inventory levels in nearly two years.

Meanwhile, the operational efficiency of sellers has improved for the fifth consecutive time. Furthermore, the finished goods inventory has also decreased as companies move to adjust their production operations in line with the decline in new orders. This is the first decrease in three months. In addition, demand for input goods continues to decline, relieving pressure on the supply chain.

The operational efficiency of sellers has improved for the fifth consecutive year with the most significant improvement recorded since February, 2015. Decreased purchasing activities also relieved some pressure on the supply chain.

Weaker demand has forced suppliers to reduce prices as a means of boosting demand, while input costs have decreased for the first time in the last three years. Prices were reported to have gone down for a second consecutive month.

Andrew Harker, economics director at S&P Global Market Intelligence, said the current decline in terms of the number of new orders is a warning sign for the Vietnamese manufacturing sector and the sector will likely face an extended period of contraction rather than just a temporary downturn.

He said that companies should be on the lookout for economic data for the coming months as this will be crucial to determine if the market is going to recover.

Leave your comment on this story