The current wave of the COVID-19 pandemic in Vietnam leads to further disruption across the manufacturing sector during July (Photo: VNA) The latest survey from Nikkei and IHS Markit revealed on August 2 that thecurrent wave of the COVID-19 pandemic in Vietnam has led to disruptions acrossthe manufacturing sector during July. Rates of decline in output and new ordersincreased from the previous month and employment was down sharply amid reportsof temporary company closures and social distancing restrictions.
Meanwhile, disruption was also felt in supply chains, with delivery timeslengthening to the greatest extent in more than ten years of data collection.The rate of input cost inflation accelerated sharply, but efforts to secureorders meant that firms raised their selling prices at a relatively modestpace.
“Anecdotal evidence from manufacturers highlighted the impact that the latest COVID-19outbreak has had on operations. Some firms have been forced to closetemporarily, while others are having to operate with reduced capacity due tosocial distancing measures,” the survey stated.
These effects, alongside a marked drop in new orders, resulted in a furthersharp reduction in manufacturing production at the start of the third quarter.The decline in output was softer only than those seen following the initialoutbreak of the COVID-19 pandemic in March and April last year.
According to the survey, alongside lower total new orders, new business fromabroad was also down. That said, the reduction in exports was softer than thatseen for total new business amid some reports of improving demand ininternational markets.
Reduced workloads, temporary closures and limits on staff numbers due to socialdistancing requirements meant that employment decreased markedly for the secondmonth running. While disruption to operations led to backlogs of work to buildup at some firms, this was outweighed by a sharp drop in new orders. Overall,outstanding business decreased moderately.
Severe disruption to supply chains was noted in July, with the extent ofdelivery delays the most marked since the survey began more than a decade ago.Panellists linked longer lead times to difficulties with transportation bothdomestically and internationally due to the pandemic, as well as raw materialshortages.
Manufacturers were also faced with surging input costs. The rate of input priceinflation accelerated the fastest since April 2011. Higher costs for rawmaterials such as iron and steel, products imported from China and freightcharges were all reported by respondents.
While some firms passed on these higher cost burdens to clients, others werereluctant to do so given a weak demand environment. As a result, the rate ofoutput price inflation was much softer than that seen for input costs,suggesting pressure on profit margins.
Concerns around the ongoing impact of the pandemic meant that businessconfidence remained below the series average in July, although firms remainedoptimistic overall of output growth over the coming year.
Commenting on the latest survey results, Andrew Harker, Economics Director atIHS Markit, said: “The current wave of the COVID-19 pandemic is having a severeimpact on Vietnamese manufacturers, according to the latest PMI data, withcompany closures and social distancing contributing to a steep drop inproduction. Rules are also limiting how many staff members can be on site atany time, further disrupting production lines.
"Added to issues with new orders and production, firms are also facingsevere supply-chain disruption. Supplier lead times lengthened to an evengreater extent than after the initial outbreak of the pandemic last year whenprice pressures surged.”
"The sector is likely to remain under pressure and struggle to generategrowth until the outbreak can be brought under control, so it will be importantto keep watching the COVID-19 case numbers for signs of improvement," Andrewsaid.
IIP up nearly 8 percent
The General Statistics Office (GSO) reported Vietnam’s index of industrialproduction (IIP) rose by 7.9 percent year-on-year in July.
The rise was much higher than the 2.6 percent growth rate of the same period in2020, but lower than the 9.4 percent rate of the same period in 2019.
Manufacturing recorded the largest gain in the first seven months of this yearat 9.9 percent, against the 4.2 percent increase of the same period in 2020.The rise contributed 8.1 percentage points to the whole industry’s growth.
It was followed by an increase of 8.2 percent in power generation anddistribution.
Water supply and waste treatment climbed 5.6 percent while mining and quarryingdeclined by 6.3 percent./.
VNA
