The country’s Purchasing Managers’ Index, which measures manufacturing activities, declined from 54 points in June to 51.2 points in July, the weakest rate of expansion since April.
"The rate of expansion was only marginal and the softest in the current sequence of growth amid signs of demand softening, shipping difficulties and price pressures," according to a report by financial information and analytics firm S&P Global.
Export value dropped 7.7 percent from June to $30.3 billion, according to the Ministry of Industry and Trade.
Several export sectors that posted growth in the first six months saw a decline in July: textiles dropped 34.8 percent, iron and steel, 34.7 percent, and concrete, 29.8 percent.
Factories are struggling to obtain orders. In the first six months, over 90 percent of companies under the Handicraft and Wood Industry Association of Ho Chi Minh City (HAWA) saw their export orders drop.
Sixty-five percent of them had to cut down on staff by 20-50 percent.
The main reason for the current situation is rising global inflation, said HAWA chairman Nguyen Quoc Khanh.
Consumers in the E.U., the U.K. and the U.S. are prioritizing buying necessaries, and high logistics costs have pushed orders to locations nearer to these markets like Mexico and Eastern Europe, he added.
Vietnam’s exports started the second half of the year on a weaker-than-expected note, with the main drag coming from muted growth in electronics, in particular phone shipments, lender HSBC said in a recent note.
"This signals the start of rising trade headwinds, as global demand is set to slow."
Samsung Electronics, the biggest foreign investor and exporter in Vietnam, is reportedly scaling down production in the country amid rising inventory and a global fall in consumer spending.
"We are going to work just three days per week, some lines are adjusting to a four-day workweek instead of six as before, and of course no overtime is needed," Pham Thi Thuong, a 28-year-old worker at a Samsung plant in the northern province of Thai Nguyen, told Reuters.
But domestic consumption is rising thanks to booming tourism and declining gasoline prices.
Revenue from retails and services in July increased 2.4 percent from June and 42.6 percent year-on-year.
Vietnam attracted 350,000 international tourists in July, three times more than the monthly average of the first six months. In the first seven months of the year, the country has welcomed almost a million visitors.
Local businesses, like beverage chain Coffee Bike, are seeing sales approach pre-pandemic levels.
Hoang Tien, CEO of the chain, said that his company was expanding the kiosk and takeaway model to take advantage of increasing demand.
"We are branching out to smaller localities, with same outlets in tourist hotspots seeing sales double the average."
Fruit distributor Mia Group has recently launched a food and beverage outlet including co-working space in Ho Chi Minh City’s District 1.
"The F&B industry is firmly recovering," said the company’s CEO Nguyen Ngoc Huyen, adding that customers were prioritizing clean and healthy products.
Analysts with brokerage firm VNDirect said that a recovery in domestic consumption and tourism were the main reasons for the growth of the service sector in July.
Revenue from accommodation, food and beverage establishments nationwide surged 134.7 percent year-on-year to VND53.9 trillion last month.
With gasoline prices returning to January level thanks to several drops in July, Pham Thi Thanh Xuan, lecturer at the University of Economics and Law under the Vietnam National University Ho Chi Minh City, said that Vietnam’s inflation was temporarily under control, for now.
Businesses and consumers are adjusting their activities to keep prices from rising, and the newly established price levels will likely remain stable for months if every contributor to the economy accepts them, he added.
Xuan said that to ensure the resilience of the economy amidst the global storm in the remaining months, both public investment and foreign direct investment were needed.
Echoing him, HSBC researchers said upgrading and expanding Vietnam’s road connectivity remains a core need, given the heavy dependence on road transport for manufacturing and residents’ mobility.
They also noted that several mega projects have faced long delays and cost overruns, prompting authorities to take a more active role in overseeing progress and solving lingering issues.
Vien Thong, Dat Nguyen
