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In September, Vietnam’s manufacturing industry slipped 1.9 points on the S&P Global Vietnam Manufacturing Purchasing Managers’ Index (PMI). It fell from 52.5 points the previous month to 50.6 points, remaining in growth zone but only just—anything below 50 indicates a contraction.
This reflects a 13-month decrease in new orders. The garment and textile sector has suffered the most, with exports falling 31.9 percent in September compared to the previous month.
This has raised some concerns, given the importance of garment and textile industry to Vietnam’s economic development. Vietnam will be the world’s second largest exporter of ready-made clothing by 2020, employing over 2.5 million people.
Why are textile and clothing orders declining?
The reduction in orders has mostly been attributed to external forces outside the Southeast Asian country’s control, specifically rising inflation in the Western Hemisphere, which is putting a strain on buyers’ wallets. Frugal Christmases in the West, on the other hand, may be fleeting.
Inflation in the Eurozone, for example, is expected to rise slightly further (currently 8.1 percent), but the European Central Bank expects this to reverse by the end of the year. It predicts 5.5 percent inflation next year and 2.3 percent in 2024. Meanwhile, slow order flows may create an environment rich in opportunities.
Vietnamese labour may become more readily available.
As sales have declined, many workers have had their shifts shortened or have been laid off completely, footwear Ty Hung Co. Ltd. recently terminated the contracts of 1,185 employees.
With numerous manufacturers situated in Vietnam’s industrial zones, this might be a benefit for recruiting managers of garment and textile enterprises who are still receiving orders.
This has the ability to affect wages as the labour supply grows.
According to the most recent General Statistics Office data, the average manufacturing worker earns roughly 8 million VND ($US321) each month. The minimum average wage (varying rates apply to different regions) is a little under 4 million VND (US$161).
Imported good’s domestic consumption might reduce
However, reduced work and lower income might result in workers being able to make lesser purchases, which may decrease importer revenues.
The majority of consumer staples are manufactured in the United States. Imports, on the other hand, are mostly discretionary, high-priced things such as electronic goods/computers, machinery, and phones.
Luxury goods sales have also increased dramatically in Vietnam in recent years. From cars to wine to fashion, a growing middle class has embraced high-quality imports.
As a result, if Vietnam’s middle-class industrial workers are compelled to hold their pockets, importers’ profits may suffer.
Cheaper to invest in Vietnam
Previously, the State Bank of Vietnam (SBV) had tight control over the Vietnamese dong. However, as the US dollar has risen to new highs, the SBV has begun to ease currency rules.
This indicates that the dong should move more in line with other currencies throughout the world that have fallen significantly in value against the US dollar.
Considering this, foreign investors wanting to transfer funds to Vietnam may profit from a better currency rate than they did even a month ago.
Foreign garment manufacturers already operating in Vietnam and exporting items in US dollars should expect an increase in revenue.
The outlook for Vietnam’s garment and textile sector
In an interview with Reuters earlier this week, Vietnam Textile and Apparel Association General Secretary Truong Van Cam stated that expectations for Vietnam’s garment and textiles sector in the run-up to the new year were low.
“We are afraid that enterprises will encounter more challenges in the fourth quarter of this year and the first quarter of 2023 due to the worldwide effects of deteriorating demand,” he said.
Typically the busiest time of year, clothing and textile manufacturers frequently rely on huge fourth-quarter sales to get them through weaker times.
As a result, lower-than-expected sales volumes now could spell trouble for clothing and textile makers in 2023.
Nonetheless, according to the Eurocham Business Climate Index poll for Q3 2022, 59 percent of respondents planned to boost their investment in Vietnam to some extent.
Furthermore, as part of the EVFTA, tariffs on a variety of garments and textiles shipped to the EU will be reduced by 2-4 percent on January 1, 2023. This could also increase demand.
What is the current state of Vietnam’s garment and textiles sector?
As a result, Vietnam’s clothing and textile industries must wait patiently.
External forces, notably inflation in developed nations, are driving the fall in orders. Vietnamese textile and apparel manufacturers have no say in the matter. Their only true response to the downturn is to reduce manufacturing expenses, such as workforce.
This could benefit new entrants into the labour market or other parts of the manufacturing sector that are expanding. Lego, for example, is investing $1 billion to build a cutting-edge factory in Binh Duong, while Apple suppliers Pegatron and Foxconn are investing a total of $1.3 billion to expand their operations in Vietnam.
A devalued dong and increased production capacity may also allow astute investors to snag some bargains. Apart from that, there isn’t much Vietnamese garment and textile manufacturers can do but wait.
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