PMI in September below 50, Vietnam's manufacturing industry declines due to Typhoon Yagi

On the morning of October 1, 2024, S&P Global released the Vietnam Manufacturing Purchasing Managers' Index (PMI) report. There were three highlights: output and new orders decreased significantly; input inventories decreased to a near-record level and the number of employees increased slightly.

The report noted that Typhoon Yagi (Storm No. 3) had a heavy impact on Vietnam's manufacturing sector in September, causing the S&P Global Vietnam Manufacturing PMI to fall below the 50-point threshold. At the same time, it signaled a deterioration in business conditions, with output and new orders falling significantly.

According to S&P Global, the Vietnam Manufacturing PMI fell from 52.4 to 47.3 in September, indicating the health of the manufacturing sector has weakened to the most significant level since November 2023. Output, new orders, purchasing activity and input inventories all fell. However, the disruption is considered to be temporary and companies remain confident in the production outlook, thereby increasing employment accordingly. Meanwhile, cost pressures remain relatively weak and output prices have only increased slightly.

Typhoon Yagi caused a sharp fall in manufacturing output in September, ending a five-month period of expansion. After a sharp increase in output in August, the decline in the survey was the sharpest since January 2023. New orders also fell by a similar amount, also attributed to the impact of the typhoon.

New export orders fell, but the rate of decline was only marginal and much weaker than the decline in total new orders as international demand picked up relatively well. With output and new orders falling, firms scaled back their purchasing activity for the first time in six months.

Delivery times were significantly extended as flooding disrupted transport. As a result, inventories of purchases fell rapidly. Moreover, this was the second-largest decline in the index’s history, surpassed only by April 2020, a month affected by the COVID-19 pandemic. Stocks of finished goods also fell in September.

The disruption caused by Typhoon Yagi is expected to be temporary, with producers remaining optimistic that output will increase next year. Photo: Hong Dat - VNA

Production line disruptions and business closures due to hurricanes continued to increase backlogs, and the increase in outstanding work during the period was the strongest in two and a half years.

The disruption caused by Typhoon Yagi is expected to be temporary, S&P Global said, adding that manufacturers remain optimistic that output will increase next year. In fact, business sentiment rose to a three-month high as companies are confident that demand will strengthen.

Positive expectations and a significant increase in new orders in previous months led manufacturers to increase hiring slightly in September after a decline in the previous month. Employment has increased in three of the past four months.

Despite rising input costs amid rising raw material prices and rising transportation costs, inflation has eased to a relatively modest level. A similar situation has been observed with selling prices. Some companies have raised prices to cope with higher input costs, but others have taken advantage of the weaker cost increases to pass on discounts to customers.

Commenting on Vietnam’s September 2024 PMI, Andrew Harker, Chief Economist at S&P Global Market Intelligence, said that the severity of Typhoon Yagi had a major impact on Vietnam’s manufacturing sector as heavy rains and flooding caused temporary business closures and delays in both supply chains and production lines. The storm put an end to a period of strong growth in the manufacturing sector.

However, “demand conditions will remain favourable for growth and this means we could see a rapid rebound in the sector as the post-hurricane recovery begins. As a result, firms remain optimistic about the outlook for next year and have increased employment even as volumes have fallen,” said Andrew Harker.

Source: https://congthuong.vn/pmi-thang-9-duoi-nguong-50-nganh-san-xuat-viet-nam-suy-giam-do-bao-yagi-349474.html