• Industrial production recovers in June

According to HBSC’s latest report the country’s manufacturing index (PMI) dropped from 48.3 in May to 46.6 in June.

The index has now posted below the neutral value of 50.0 for three months running.

The report says that output prices dropped markedly amid weaker demand and falling raw material costs. A number of manufacturers say that lower-than-expected sales have resulted in unwanted inventory build up.

The deterioration in business conditions reflected the significant decline in new orders during June. Incoming new business fell for the second successive month and at the fastest rate since the survey began in April 2011.

Anecdotal evidence widely suggests that the global economic slowdown has caused a squeeze on spending among clients. The latest data points to a marginal reduction in new exports, which is attributed to the softer demand from both developed and emerging markets.

Fewer new orders meant reduced production in June, with output volumes declining for the third consecutive month and at the most accelerated pace since February. Manufacturers sought to utilise their spare capacity in June by reducing their levels of work-in-hand that has not yet been completed, therefore outstanding business dropped at its fastest pace in the 15 months data has been collected.

Post-production inventory increased steadily in June, reversing May's downward trend. A number of manufacturers noted that lower-than-expected sales had resulted in unwanted inventory building. This, in turn, encouraged firms to alleviate pressure on working capital by cutting input buying. June data signaled a sharp drop in purchasing and a steeper fall in pre-production inventories in May.

Softer demand and lower production has led to a decrease in the employment figures for June, thereby ending a three-month period of net job creation. That said, most manufacturers noted that lower workforce levels is a result of not replacing those who voluntarily left employment, not staff downsizing.

Meanwhile, average input costs fell for the first time since January and more quickly than at any time since the survey began in April 2011. Reports from survey respondents frequently mentioned lower oil prices. Output charges in the manufacturing sector also fell more quickly in June than in the previous month.

Commenting on the Vietnam Manufacturing PMI survey, Asia economist for HSBC Trinh Nguyen says the continued slowdown in manufacturing suggests   businesses continue to face tough conditions in Vietnam. “Internal and external demand is low. Prices are continuing to drop due to the low demand and commodity prices, as indicated by the drop in input costs. The State Bank of Vietnam lowered interest rates in the first half of the year to spur spending in the country. This is likely to filter through into the second half of 2012 and boost economic activity,” he said.