Vietnam factory activity dips in July as Covid-19 impacts grow

The headline Vietnam Manufacturing Purchasing Managers' Index (PMI) dipped back below the 50.0 no-change mark in July, posting 47.6 compared to 51.1 in June, indicating business conditions have now deteriorated in five of the past six months due to the Covid-19 impacts, according to Nikkei and IHS Markit. 

A reading below the 50 neutral mark indicates no change from the previous month, while a reading below 50 indicates contractions and above 50 points to an expansion.

July data pointed to a modest reduction in manufacturing output, after a return to growth had been registered in the previous month. That said, the fall was much softer than seen during the worst of the recent downturn.

Respondents indicated that the Covid-19 pandemic continued to impact operations, with new orders reportedly lower. Both the intermediate and investment goods sectors recorded falls in output, while consumer goods production increased.

In line with the picture for output, new orders fell following a rise in June. Total new business was undermined by a sharp contraction in new export orders, linked to restrictions on travel and falling demand in export markets due to the Covid-19 pandemic. With new orders taking a step back, firms were able to deplete their backlogs of work again in July.

As well as seeing staffing levels decrease, manufacturers scaled back their purchasing activity, stocks of inputs and finished goods inventories at the start of the third quarter. In all cases, falls in July followed rises in June and were linked to a reduction in new orders.

Scarcity of raw materials contributed to a second successive monthly increase in input costs during July. That said, the rate of inflation remained muted.

Meanwhile, output prices were reduced for the sixth month running. The latest fall was modest, but sharper than that seen in June. Those panelists that lowered selling prices generally linked this to competitive pressures.

Despite a drop in output in July, firms remained confident in the 12-month outlook for production. Sentiment was down only slightly from that seen in the previous month. According to respondents, expected improvements in market demand and new orders were behind the positive outlook for output.

“The recovery in the Vietnamese manufacturing sector took a step back in July, a disappointing development given the return to growth seen in June. The data highlight the impact that the Covid-19 pandemic continues to have on the economy, with new export orders particularly hard to come by given travel restrictions and continuing outbreaks in a number of export markets,” said Andrew Harker, associate director at IHS Markit, which compiles the survey.

"The reduction in output was relatively mild compared with the depths of the recent downturn, however, and historical relationships of the PMI against official manufacturing output data suggest that production is growing at something approaching 10% year-on-year."