Vietnam's manufacturing PMI dropped to 51.6 in October to put pressure on rebound over the rest of year

The Nikkei Vietnam Manufacturing Purchasing Managers' Index (PMI), a composite single-figure indicator of manufacturing performance, dipped to 51.6 points in October, down 1.7 percentage points from 53.3 in September.

The indicator shows a modest improvement in the health of the sector within the last five months. However, it has continuously increased since December 2015.

Nikkei’s report compiled by IHS Markit shows that the Vietnamese manufacturing sector experienced a slowdown in growth during October, with weaker rises in output, new orders, and employment. New orders continued to increase solidly amid the faster growth of the new export business.

The main reason for the weaker improvement in the manufacturing sector was the much slower rise in manufacturing output. Production increased at a marginal pace that was the weakest in the current 12-month sequence of expansion.

With new business increasing at a solid pace and output rising only marginally, manufacturers used inventories to help fulfill orders. As a result, stocks of finished goods decreased for the fourth consecutive month.

With new orders increasing to a greater extent than output, backlogs of work were accumulated despite the solid job creation in October.

The input cost continued to increase sharply in October with a slower rate compared to September. Also, supply shortage and the floods also led to longer suppiers’ delivery time.

However, manufacturers remained confident that output will increase over the coming 12 months, thanks to predictions of improving market demand and the hitting of company targets.

“Manufacturing sector remains a strong sector of the Vietnam economy this year. Therefore, from November to the end of 2017, growth should increase again to achieve the GDP growth target of 6.7 per cent. IHS Market currently forecasts a growth of 6.5 per cent," said Andrew Harker.