Manufacturing sector recovers in June

Manufacturing sector recovers in June

Phuong Thao

HCMC – Growth in the Vietnamese manufacturing sector improved at the end of the second quarter following a slowdown in May, as a solid rise in new orders drove up production, employment and purchasing activity, said a Nikkei report.

The headline Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) rose to 52.5 in June, up from May’s 14-month low of 51.6. The latest reading signaled a solid improvement in the health of the sector, and one that was above the average since the survey began in March 2011.

Having slowed markedly in May, the rate of growth in new orders accelerated last month. The latest increase in new business was solid, and linked by panelists to strengthening market demand. New export orders also rose at a faster pace in June.

The expansion in total new business reflected growth in the consumer and intermediate goods sectors, with the pace of increase particularly strong in the former. Meanwhile, investment goods firms saw new orders declining.

New order growth, allied with strengthening client demand, resulted in an eighth successive monthly increase in output. The rate of expansion ticked up from that seen in May, said the report.

However, business sentiment eased further in June, dropping for the fourth successive month to the weakest since June 2013. The latest reading still signaled solid optimism, however, with positive sentiment reflecting expectations of strengthening market demand, success in securing new orders and plans to expand capacity.

Andrew Harker at IHS Markit, which compiles the survey, said the pick-up in growth in the Vietnamese manufacturing sector in June allays some of the concerns that were raised by the marked slowdown seen in May, with a solid rise in new business particularly encouraging.

Although slightly down on the first quarter of the year, the average PMI reading over the second quarter points to a further solid expansion of Vietnamese manufacturing output. IHS Markit forecast a rise of 6.2% in gross domestic product (GDP) this year, with these data suggesting that the manufacturing sector continues to make a positive contribution, the expert said.

The rate of job creation also accelerated in June, with manufacturers in Vietnam responding to higher new orders and production requirements. This added operating capacity facilitated the reduction of backlogs of work at some companies.

Besides, manufacturers raised their purchasing activity for the nineteenth month running, and at a solid pace.

This helped lead to an increase in stocks of purchases, with a number of firms mentioning efforts to build inventory reserves. Post-production inventories also expanded in June, but only slightly as some companies used inventories to help fulfill orders.

The rate of input cost inflation picked up, but remained much weaker than seen in the first three months of the year. Despite higher cost burdens, firms reduced their output prices for the second month running amid reductions in the costs of some inputs and efforts to secure sales.

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