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Manufacturing conditions improve in June

Released at: 21:42, 03/07/2016

Manufacturing conditions improve in June

Photo: Duc Anh

Output growth at an 11-month high, according to latest report from Nikkei and Markit Economics.

by Thu Hoang

Business conditions in Vietnam’s manufacturing sector continued to improve in June, with output growth quickening to an eleven-month high, according to the latest report from Nikkei and Markit Economics released on July 1.

The Purchasing Managers’ Index (PMI) - a composite single-figure indicator of manufacturing performance - was 52.6 in June, broadly in line with the reading of 52.7 from May and signaling a further solid improvement in the health of the sector. Manufacturing operating conditions have now strengthened in each of the past seven months.

“The Vietnamese manufacturing sector continued to build on a positive start to the year in June, with output growth continuing to accelerate on the back of solid expansions in new orders from both home and abroad,” said Mr. Andrew Harker at Markit, which compiles the survey. “Helping firms secure new business was competitive pricing, in turn facilitated by a moderation of cost inflation in the sector.”

The rate of expansion in manufacturing output quickened for the fourth successive month and was the sharpest since July last year, according to the report. “According to respondents, higher new orders was the key factor leading production to rise,” the report noted.

Total new business continued to increase at a solid pace, albeit one that was slightly weaker than in May. The rate of expansion in new export orders, on the other hand, accelerated to a 14-month high.

Increased production facilitated a reduction in backlogs of work during June, for the third time in as many months. Moreover, the latest fall in outstanding business was the sharpest since October last year.

Higher output requirements led manufacturers to increase both their employment and purchasing activity. Staffing levels rose at a solid pace and faster than recorded during May. Meanwhile, the rate of growth in input buying eased slightly in June. “That said, purchasing activity has now risen in each of the past seven months,” the report stated.

Despite further growth in input buying, stocks of purchases decreased as items were used in the production process. This followed an increase in the previous month. Stocks of finished goods also fell in June, the sixth successive month in which this has been the case.

Although input prices continued to increase in June, the rate of cost inflation eased to the weakest in the current four-month sequence of rising prices, according to the report. There were some mention of higher oil prices, but other firms indicated lower prices in global markets.

Output prices decreased for the first time in three months, albeit only slightly. “According to respondents, weak cost inflation contributed to lower charges,” the report stated. Suppliers’ delivery times were unchanged in June, the third successive month in which lead times have either been stable or changed only negligibly.

The latest assessment from the International Monetary Fund (IMF) released recently noted that Vietnam’s economy has experienced solid growth with low inflation, reflecting policy attention to maintaining macro-economic stability. Economic performance was robust through most of 2015, driven by rapid export growth, foreign-direct investment (FDI), and strong domestic demand.

Manufacturing and exports moderated near year-end - reflecting slowing external demand - and agriculture production fell sharply at the beginning of 2016, owing to a severe drought and salinity, according to the IMF.

Inflation fell below 1 per cent in 2015 before ticking upwards in early 2016 due to higher food and administered prices. “The current account narrowed sharply from rising imports and gross international reserves declined in the second half of 2015 before recovering in early 2016,” the IMF reported.

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