Covid-19 epidemic dragging production output down

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The epidemic makes input costs increase while demand and output prices decrease, putting pressure on enterprises’ profit margin. Photo: N.H

According to the latest Purchasing Managers' Index (PMI) survey released by Nikkei on March 2, coronavirus has seriously affected Vietnam's production sector in February with a decrease in output, orders and employment. Meanwhile, the scarcity of Chinese goods has pressured input prices and companies face additional costs because they cannot increase their selling prices.

The PMI index of Vietnam’s production sector fell from 50.6 in the previous month to below 50 points in February, signalling a decline in business conditions. This result marked the first decline in more than four years.

A major factor leading to the decline in business conditions was a significant drop in output in February. Survey team members believed the Covid-19 epidemic made the output decline at the fastest rate since June 2013.

This epidemic has also had a negative impact on demand in February. The number of new orders dropped for the first time since November 2015, partly due to a decline in new export revenue. Some survey respondents mentioned a decrease in the number of new orders from China when explaining the decline in international trade.

The virus also negatively affected the supply chain in the latest survey. The sales performance of sellers has decreased at the strongest level since June 2014. Surveyed areas all had slower delivery times.

In terms of costs, scarcity of essential input goods increased the cost burden in February. Some survey team members raised difficulties in importing goods from China. Meanwhile, reduced demand forced companies to lower average output prices. Only capital investment products increased output prices.

Despite this, companies remain optimistic about business prospects in the coming 12 months based on expectations of improving demand. However, optimism has dropped to the lowest level in history due to concerns about the long-term impact of Covid-19.

Commenting on the PMI survey data for Vietnam’s production sector, Andrew Harker, Deputy Director at IHS Markit, the company in charge of collecting the survey results, said that coronavirus has seriously affected Vietnam's production sector in February, both supply and demand. The combination of decline in exports to China and fears of domestic epidemic has declined business conditions, and this is the first decline in four years.

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Meanwhile, companies have faced difficulties in importing essential input goods from China during the epidemic, putting pressure on input costs. This situation together with the reduced demand and decreased output prices has put pressure on profit margins.