Vietnam manufacturing sector continues recovery

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The seasonally adjusted HSBC Vietnam Manufacturing PMI posted 51.0 in April, marginally up from March, to show back-to-back improvement for the first time in almost two years.

An HSBC report issued May 2 said the purchasing managers index (PMI), an indicator of the economic health of the manufacturing sector, was boosted by faster growth in new orders and employment and a further expansion of production volumes.

According to the report, compiled by global financial information services company Markit, manufacturing output rose for the second successive month in April, albeit at a slightly slower pace than in March.

Higher output reflected a further increase in new orders, as companies reported improved sales to domestic clients. Meanwhile, subdued international market conditions meant that the level of new export business showed only a negligible increase compared to one month earlier.

Manufacturing employment also rose for the second consecutive month during the latest survey period, with jobs growth linked to the recent mild recoveries in production and new order volumes, the survey added.

April data pointed to a further solid decrease in work-in-hand, but not yet completed, volumes. A number of firms reported that they had executed existing contracts using stocks to clear backlogs. Stocks of finished goods dwindled for the sixth month running.

Average input costs increased again during April, with manufacturers reporting that they were paying higher prices in both domestic and world markets. Purchasing costs have risen in each of the past four months, though the rate of increase during the latest survey period was slower than in March.

Vietnamese manufacturers reported that competitive market conditions restricted their ability to pass on rising costs to customers.

Subsequently, average output prices declined for the first time in three months, with the rate of decrease the sharpest since last December. There were also some reports of manufacturers offering discounts to boost sales.

Stocks of purchases declined again in April, meaning inventories have fallen throughout the past one-and-a-half years. This was despite a big increase in input buying volumes, which was initiated in part to reduce the pressure on raw material stocks. Vendor lead times were broadly unchanged in April, as has been the case so far this year.

Trinh Nguyen, Asia economist at HSBC, said: "The expansion of manufacturing activity reflects a gradual improvement of domestic demand. The manufacturing sector continues to see growth, as indicated by the rise in employment and output.

"While the economy is weighed down by underperformance of the state sector, the private sector, especially the manufacturing industry, continues to pull its weight to sustain the economy.

"The year-to-date increase of foreign investment into manufacturing shows Vietnam's still-strong competitiveness in labor-intensive manufacturing."

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