Finance Associated Press, September 2 (Editor Xiao Xiang) Decades of high inflation, unprecedented energy crisis - recently, just when the people of Europe and the United States are frightened by the high prices on supermarket shelves and the terrible electricity bills, a "cold wind" caused by the global economy may be deeply in recession is also beginning to sweep into distant Asia...
Recently, reports of "order shortages" in some manufacturing plants around the world have emerged from time to time, and this scene is beginning to become more and more common in Vietnam, the foundry center of Southeast Asia. Although in the first quarter of this year, many Vietnamese factories claimed that orders were "hot" enough to line all the way to the end of the year, after just a few months, the situation seems to be undergoing a subtle change!
According to Vietnamese media Vnexpress, since the second half of the year, many Vietnamese manufacturing factories have received a significant reduction in orders, coupled with the rapid expansion of production lines and recruitment in the previous period of time, resulting in many factories now have to reduce production time and arrange workers to take turns to take vacations.
As incomes plummet due to insufficient working hours under compulsory leave, the "homecoming wave" of Vietnamese workers, which was once seen at the peak of the epidemic last year, is also quietly playing out in some areas. Even this time, for some low-end manufacturing industries in Vietnam, the "cold winter" encountered by the peripheral market may be more terrible than the original epidemic...
(Vnexpress: Factory workers face unemployment and return due to order shortages)
According to data from the General Directorate of Statistics of Vietnam on August 29, The total export of goods from Vietnam in August 2022 is expected to be US$33.38 billion, an increase of 9.1% month-on-month, and is expected to temporarily reverse the decline of 7.7% month-on-month in the previous month.
However, Vietnam's official vietnam news agency also mentioned that the world economy is expected to face many difficulties in the remaining months of 2022, and even some major economies may fall into recession. Inflation continues to rise sharply in many countries and regions, which will affect the consumption of non-essential goods, resulting in a decline in demand in countries, including Vietnam.
Tiger fall "Binh Duong"?
Binh Duong Province, located in the southeastern region of Vietnam, is the region with the highest average salary in Vietnam. The province is also arguably Vietnam's most economically competitive province – with 29 industrial zones and 12 large industrial parks, it is a model of internationalization and infrastructure for Vietnam's industrial cities.
But it is this leading region of vietnam's economy that seems to be feeling more chilly at the moment.
According to the Binh Duong Confederation of Labor, more than 330 manufacturing companies in the region have encountered difficulties since the second quarter, having to lay off employees, suspend contracts and give workers unpaid leave. The total number of employees affected exceeds 41,000.
Dang Tan Dat, deputy director of the federation's legal policy department, said some of the goods that are mainly exported to the EU and the US, such as wood products, textiles, footwear and electronics, are facing huge challenges. He said orders at many factories had fallen by 30-50 per cent, manufactured goods could not be exported and revenues had fallen sharply.
He added that when workers at these companies lose their jobs, many of them choose to pack up and return to their hometowns because a basic salary of 4 million to 5 million VND (about 1170-1470 yuan) is difficult for them to survive in the city.
Huynh Van Toan, a 40-year-old migrant worker, recently returned to his hometown of Cam Ou province after cutting orders in half for Hoang Thong Wood, the company he previously worked for. Since May, as business has slowed, the company has been operating at half capacity and no longer requires employees to work overtime.
While the company was willing to continue to pay their base salary, the total income of Toan and his wife, who also works at the factory, was significantly reduced by nearly VND7 million ( about 2,060 yuan ) . With their income barely enough to make ends meet, the couple eventually decided to leave only one and the other to return home with their son first. If the company's orders continue to fall, their entire family will go back.
Toan says, "In the countryside you don't have to pay rent. If you're hungry, you can pick vegetables directly in the field and eat them. ”
According to Duong Quang Hiep, the company's director of human resources, orders grew rapidly at the beginning of the year, when they even spent more than VND 3 billion to recruit nearly 1,500 employees in different provinces. If these employees live far away, they are also paid for their tickets. In April, due to the surge in demand, its business partners even sent trucks directly to the factory to wait for pickup.
But less than a month later, the order volume began to plummet. "We spent a lot of time and money recruiting employees, but now we have to accept the fact that they're leaving," Hiep said.
According to him, most of the workers who resigned returned to their hometowns because the wood products factories in the same industry could hardly find jobs, and many enterprises had closed down because there were no orders.
Nguyen Hoang Po Tan, vice chairman of the Binh Duong Federation of Labor, said the province's unions would soon coordinate with labor authorities to find new job opportunities for migrant workers. She added that unions have called on companies to quickly implement a support package for workers.
Order crisis
According to the Ho Chi Minh City Chamber of Commerce in Vietnam, in this round of manufacturing "order shortage", labor-intensive industries such as electronics, textiles, footwear, and wood processing have been hit the hardest by the decline in orders in the United States and Europe.
Tran Thi Tuyet Mai, deputy secretary-general of the Vietnam Textile and Garment Association, pointed out that at the beginning of this year, there were many orders from enterprises, and few people could find suitable workers. However, in the second quarter, with the outbreak of the Russian-Ukrainian conflict and the fermentation of factors such as rising oil prices, people's purchasing habits around the world began to change. Brands began to reduce the number of orders, which meant factories had to take workers on vacation.
Nguyen Huu Phuoc, head of marketing for Nguyen Phuoc shoe producers, said that the company often received orders one to two quarters in advance, but now the order will only be 2-3 months in advance.
He said that while sales in the first half of the year were satisfactory, orders for September and October were expected to continue to decline. Now many shoe companies can only "barely make ends meet", and orders are not as sufficient as in the past. Due to the sharp drop in demand, some partners even canceled orders.
Nguyen Quang Vu, president of the Binh Duong Leather Footwear Association, also confirmed that orders for footwear products in August, September and October decreased by 30% compared to the same period last year.
In the electronics sector, employees at Samsung Electronics' Vietnam factory earlier last month also broke the news that Samsung Electronics once scaled back production at its large smartphone factory in Vietnam as global consumer spending fell and led to inventory backlogs. "We only work 3 days a week, and some production lines are being adjusted to a 4-day work system instead of the previous 6-day work system, of course, there is no need to work overtime."
The data shows that the year-on-year growth rate of mobile phone module production in Vietnam from January to July fell by about 1 percentage point compared with That from January to June, and the year-on-year growth rate of mobile phone component production in July fell by about 16 percentage points compared with June.
Pham Thi Thu Lan, deputy director of the Ho Chi Minh City Institute of Workers and Trade Unions, said workers would inevitably be hit the hardest once orders slowed. She said millions of people are now being affected by falling global demand.
According to the latest projections released by the World Bank last month, Vietnam's GDP is expected to grow by 7.5% in 2022 and 6.7% in 2023. While forecasts remain optimistic overall, the World Bank also highlighted several major risks to Vietnam's economy.
The World Bank pointed out that from an external point of view, the economic slowdown of Vietnam's major trading partners is more serious than expected and will be the main risk. The lockdown in major economies could prolong supply chain disruptions and affect Vietnam's manufacturing exports. Heightened geopolitical tensions also increase uncertainty and could trigger a shift in trade and investment patterns that could affect Vietnam's highly open economy.
Global cold winds
In fact, the current "order shortage" faced by Asian factories represented by Vietnam is inherently related to the global economic environment and even the warnings previously issued by US retailers.
The largest warehouse market in the U.S. is now full of goods, and major U.S. retailers such as Best Buy and Target have warned that sales could slow as shoppers tighten their belts after the consumer frenzy of the early days of the pandemic.
The ongoing fermentation of the epidemic, the unstoppable conflict between Russia and Ukraine, the tightening of financial conditions, the raging storm of power rations, and the brakes on external demand have become common challenges for many Asian export-oriented economies. Behind the "dormancy" of Vietnamese factories, it is natural to reflect the current decline in demand in the global market.
Nguyen Quoc Khanh, president of the Hawa Business Association Of Vietnam, pointed out that the main reason for the current situation is rising global inflation. Consumers in the European Union, the United Kingdom and the United States are prioritizing necessities, and high logistics costs are driving orders closer together, such as Mexico and Eastern Europe.
Countries such as Bangladesh and India, which compete with Vietnam's manufacturing industry, especially the textile industry, are somewhat even more miserable today.
Some Bangladeshi garment industry insiders predicted last month that after experiencing unusually strong growth of more than 30% in 2021, Bangladesh's garment export growth may fall to about 15% this year, as the consumption of customers in the United States and Europe has cooled sharply. Bangladesh is the world's second largest garment exporter after China, with garment industry exports accounting for more than 80% of Bangladesh's total exports.
Affected by the global economic recession, the Indian textile industry has also been deeply affected. Orders for apparel and home textile exports from the U.S. and Europe fell by about 15%-20% in June as Western retail brands faced slow demand.
**In fact, at the beginning of September, the sluggish performance of a series of global manufacturing PMI data makes it easy to feel the atmosphere of "winter has arrived":
Japan's manufacturing purchasing managers' index (PMI) fell to 51.5 in August from 52.1 last month, the slowest growth rate since September 2021;
South Korea's August PMI fell to 47.6 from 49.8 in July, the second consecutive month below the boom-bust watershed;
Note: Compared with the PMI of Japan, Korea and Vietnam, the blue line is Vietnam
S&P Global recently said that customers are showing more hesitation when placing orders, leading to a sharp drop in new orders. At the same time, the factory reported that inventory increased further because the product was not sold.
Perhaps this time, how to "survive" in the economic winter has indeed become a problem that many Asian factories need to put in the first place.
This article originated from The Financial Associated Press Xiaoxiang
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