Women work at a clothing company in the southern province of Binh Phuoc. Vietnam's manufacturing output and new orders fell steeply last month – PHOTO: VNA

HCMC – The fourth Covid-19 wave, which began in late April, led to a sharp decline in business conditions for manufacturers in Vietnam in June, according to IHS Markit’s latest report.

Output and new orders both decreased at the sharpest rates since the pandemic broke out early last year, while firms scaled back their employment and purchasing activity accordingly.

The pandemic also impacted supply chains, resulting in delivery delays. Meanwhile, the rate of input cost inflation remained marked but slowed sharply from that seen in May, and firms raised their own selling prices at only a marginal pace amid weaker demand.

The Vietnam Manufacturing Purchasing Managers' Index (PMI) dropped sharply to 44.1 in June from 53.1 in May, pointing to the sharpest deterioration in business conditions for over a year and ending a six-month period of growth.

Lockdown measures and temporary company closures were some of the factors that led to sharp reductions in both output and new orders in June. New business from abroad also decreased as transport issues and container shortages exacerbated the impacts of the rise in Covid-19 cases.

Material shortages, transport issues and restrictions linked to the pandemic led to a marked lengthening of suppliers' delivery times. The extent of delays was the second-largest on record, just behind that seen in April 2020.

Manufacturers responded to falling workloads by cutting back their staffing levels, causing employment to decrease for the first time in five months.

Similarly, purchasing activity fell at the fastest pace since April 2020 following the initial outbreak of the pandemic. Declining input buying fed through to a steep reduction in stocks of purchases.

Stocks of finished goods also decreased in June due to falling production and the desire of businesses to hold less stock amid declining new orders. Firms were able to deplete their backlogs of work for the first time in three months in line with lower new orders.

Business confidence fell to the lowest since August last year, reflecting concerns about the ongoing impact of the pandemic. However, firms remained optimistic overall that output would increase over the coming year.

“The June PMI data clearly showed the impact of the latest wave of the Covid-19 pandemic on the Vietnamese manufacturing sector, with company shutdowns in areas facing restrictions leading to sharp reductions in output and new orders across the sector as a whole. Firms responded quickly to a lack of workloads, scaling back their staffing levels and purchasing activity,” Andrew Harker, economics director at IHS Markit, commented on the latest survey results.

"The reduction in manufacturing output in June was stronger than anything seen prior to Covid-19 since the survey began more than a decade ago. Firms will therefore be hoping for a swift improvement in the health situation and the beginning of a return to more normal operating conditions," he added.