Manufacturing slows slightly during April

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VietNam News English - 34 month(s) ago 5 readings

HSBC Viet Nam yesterday released its April Viet Nam Manufacturing Purchasing Managers' Index (PMI), which said the index slightly declined to 49.5 in April from 50 in March, and the figure signalled that overall business conditions worsened slightly.

HCM CITY — HSBC Viet Nam yesterday released its April Viet Nam Manufacturing Purchasing Managers' Index (PMI), which said the index slightly declined to 49.5 in April from 50 in March, and the figure signalled that overall business conditions worsened slightly.

The index has been compiled for HSBC by Markit, a global financial-information services company since April 2011.

The PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives at more than 400 manufacturing companies in Viet Nam,

Survey responses reflect the change, if any, in the current month compared to the previous month, based on data collected mid-month.

For each of the indicators, the report shows the percentage reporting of each response, the net difference between the number of "higher" or "better" responses and "lower" or "worse" responses, and the "diffusion" index.

The index is the sum of the positive responses plus a half of those responding "the same".

Readings above 50 signal an improvement in business conditions in the previous month, while readings below 50.0 show deterioration, according to Pham Hong Hai, HSBC Viet Nam deputy CEO.

The PMI is a composite index based on five of the individual indexes of new orders, output, employment, suppliers' delivery times and stock of items purchased.

The headline PMI has now indicated deteriorating business conditions in six of the past seven months, with the lowest point of the downturn seen in February 2012.

The main reason behind the overall worsening of operating conditions in April was a weaker contribution from the output component, which more than offset stronger new-orders data, according to Trinh Nguyen, Asia economist at HSBC.

April's survey pointed to a slight decline in production levels across the country's manufacturing sector, which reversed the marginal upward trend seen in March.

That said, the reduction in output was much slower than that seen at the turn of the year, largely reflecting support to production from higher export intakes and greater work on outstanding business in April. Manufacturers reported an overall increase in new business levels for the first time since November 2011.

Stronger export demand was the primary source of growth in April, as highlighted by a third successive monthly improvement in new business intakes from abroad.

Moreover, latest data pointed to the fastest overall increase in Vietnamese manufacturing new export orders since the survey began in April 2011.

Companies noted that greater exports to China, alongside a gradual recovery in sales to clients in Japan, had helped offset subdued demand from Western Europe.

Increased inflows of new work and ongoing expansion plans at manufacturing firms resulted in further job creation during April.

This in turn contributed to a drop in unfinished business over the month, with the rate of decline in backlogs the sharpest since data were first compiled in April 2011.

Vietnamese manufacturers remained cautious about their stock policies in April, with input buying and pre-production inventories both declining since March.

Stock streamlining was linked to tight control of working capital and corresponding efforts to avoid unwanted inventory accumulation.

Warehouse management was also helped by a further improvement in supplier delivery times.

Higher oil-related prices, especially transportation fees, resulted in another robust increase in average cost burdens.

However, the rate of input-price inflation eased from the 10-month high seen in March.

Factory-gate price inflation, meanwhile, remained relatively subdued, with firms suggesting that strong competition for new work had resulted in only gradual increases in their output charges.

"The dip in manufacturing output in April reflects more cautious behaviors of businesses in Viet Nam," said Trinh Nguyen. "While external demand has shown some improvement as demand from China and Japan accelerates, sluggish domestic demand has caused manufacturers to be cautious about accumulating inventories."

"Looking ahead, we expect export growth to accelerate due to a gradual global recovery in demand from China, Japan and the US, while domestic demand will remain subdued," she added.

"As such, the State Bank of Viet Nam is likely to deliver more cuts in the coming quarters to support spending."

Sumit Dutta, CEO of HSBC Viet Nam, said he hoped investors and others would use the index as a forecasting tool for choosing optimal strategies.

Users of the PMI include central banks, governmental bodies, investment banks, investors and businesses. — VNS

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