Production industry of Vietnam grows slowly in March 2018

The rate of increase in new orders has slowed in March. Photo: N.Hiền

The purchasing managers’ index (PMI) for the whole of Vietnam’s production industry, the Nikkei Index– a composite measure of industry performance – has reduced to 51.6 points in March 2018 compared to 53.5 points in February 2018. The result showed that the wealth of production industry has improved at a normal level, but this is a weaker rate since November of 2017.

The data in March also showed that volume has increased slightly, but is the slowest rate in the last 4 months.

Furthermore, the report showed that the reason for increasing production volume is the increase in purchase orders. The rate of increase in new orders has slowed, but remains strong as reports show that customer demand has improved. The number of new orders increased as the number of new orders from overseas increased, and this is the most significant increase since last October

The number of new orders that have grown more slowly has helped companies address unfulfilled workloads in March 2018. The rate of decline has increased to the lowest level in three years.

Although input prices continued to rise sharply in March, the pace of price increases slowed. Where input costs increase, the cause is attributed to rising market prices. Output prices also slowed down because of competitive pressure. Sales prices have increased steadily during the past seven months.

Inventory remained almost unchanged in March 2018. Inventory changed only slightly after three consecutive months of increase, while stockpiles finished stable after eight months of decline. The members of the survey team said that the volume of new orders increased slowly, leading to a cautious approach to warehousing.

Nevertheless, producers are still optimistic that output will grow next year, with optimism rising again after reaching a low level in February. More than 55% of surveyed respondents forecast that output will increase.

Commenting on Vietnam Manufacturing PMI survey data, Mr. Andrew Harker, Associate Director at IHS Markit, the company that collected the survey results, indicated that although growth was stagnant in March, Vietnam’s manufacturing sector has weaker growth targets, especially in terms of output. The number of new orders continues to increase sharply thanks to the export sector, which has led to optimism about the prospects of increasing output in the near future. Companies are also less worried about inflation as input costs rose much more slowly than in February. Thus, inflationary pressures may have peaked around the turn of the year.

Meanwhile, the ASEAN Manufacturing PMI report released on 2/4 showed that in March, Myanmar displaced Vietnam to lead the ASEAN manufacturing rankings, as growth in its manufacturing sector picked up to a solid pace. Vietnam slipped to second position, having registered a slower improvement in operating conditions, while the Philippines climbed to third place as adverse effects on demand from recent tax reforms showed signs of fading.

Commenting on the ASEAN Manufacturing PMI survey data, Bernard Aw, Principal Economist at IHS Markit, which compiles the survey, said: “The ASEAN manufacturing upturn hit a snag at the end of the first quarter, with forward-looking survey indicators pointing to slower growth in coming months.“ Both output and new orders grew at slower rates while employment was broadly stagnant. Firms barely raised purchasing activity, preferring to tap into current inventories

The ASEAN producers continue to have significant input costs. However, the increase in price constraints due to weak demand shows that companies have difficulty transferring the cost burden to customers, which puts pressure on profit margins. The increase of cost comes from rising world prices for inputs such as industrial steel, fuel, paper and chemicals. It also shows that companies have less control over the burden of cost increases.