Hanoi (VNS/VNA) - The Vietnamese manufacturing sector returned to growth in Juneas success in suppressing the coronavirus pandemic and greater businessconfidence helped lead to renewed expansions in output and new orders.

A survey of Nikkei and IHS Markit released on July 1 showed the VietnamManufacturing Purchasing Managers' Index (PMI) posted 51.1 in June, upfrom 42.7 in May and above the 50.0 no-change mark for thefirst time in five months. The reading represented a continuation of therecovery seen since the PMI hit a record low in April.

According to the survey, new orders increased for the first time in fivemonths, and at a solid pace that was the fastest in just under a year.Respondents indicated that the COVID-19 pandemic being brought under control inVietnam had contributed to rising new business. Both the consumer andintermediate goods sectors posted expansions in new business, but investmentgoods orders continued to fall.

While total new orders increased, new export business declined again amidrestrictions on international movement and customer closures in some exportmarkets.

A renewed rise in production was also signalled in June, driven by the consumergoods sector, the survey showed.

Despite new orders increasing at the end of the second quarter, there wascontinued evidence of spare capacity in the sector. Backlogs of work fellagain, while staffing levels were reduced for the fifth month running. Thatsaid, the pace of decline in staffing levels was the weakest since February.

Efforts to expand production led firms to accumulate stocks of purchases,facilitated by a marginal rise in purchasing activity. Moreover, pre-productioninventories increased to the greatest extent since November 2018. Stocks offinished goods also expanded, partly reflecting delays in the shipment offinished products.

Firms signalled a rise in input costs for the first time in three months duringJune. Where input prices increased, respondents linked this to the scarcity ofcertain materials. That said, the rate of inflation was softer than the seriesaverage as suppliers responded to relatively weak demand for inputs.

Whilesome firms reacted to higher input costs by increasing their own sellingprices, others continued to reduce charges amid demand weakness. Selling pricesfell for the fifth month running, but at a marginal pace that was the slowestin this sequence.

Panellists reported continuedissues in supply chains as a result of the COVID-19 pandemic, particularly withregard to imported items. Suppliers' delivery times lengthened for the seventhconsecutive month, albeit to the least extent since January.

Confidencethat COVID-19 is under control in Vietnam and that new orders will expandsupported optimism that production will increase over the coming year.Sentiment strengthened sharply for the second month running and was the highestsince January.

“The Vietnamese manufacturing sector returned to growth in June, thanks toCOVID-19 being brought under control and subsequent improvements in customerdemand within Vietnam,” Andrew Harker, Economics Director at IHS Markit, said,noting the main hurdle to a strengthening recovery is likely to be theperformance of the global economy, which is still suffering due to the virus.New export orders continued to fall, while firms again cited difficulties insecuring inputs from abroad.

"Moreover, COVID-19 appears to have taken a large toll on the economy inrecent months. IHS Markit currently forecasts GDP to rise by just 1 per cent in2020, well down on the 7 percent increase seen in 2019."/.