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AlwaysFree: Vietnamese Factories Go Idle As Orders From The West Slow

Author: SSESSMENTS

  • In run-up to holiday, demand drops for Asian exports from smartphones to sweaters

According to Nikkei Asia’s article published on October 18, 2022, now is usually the period when Phan Ngoc Anh gets some early holiday cheer as her sector, Vietnam's garment industry, fields shiploads of U.S. and European orders ahead of Christmas. But not this year.

Perennial demand before the year-end shopping season is drying up, with slowdowns in Western economies rippling across the Pacific to economies like Vietnam, a top source of clothes, electronics and other popular holiday gifts.

The Southeast Asian country's exports dropped 14.3% from August to September, feeding concerns about reduced consumption in foreign markets facing inflation, fuel shortages and economic contraction.

"IfU.S. and Europe cannot overcome the situation, we may be hopeless," said Anh, sales manager at Po Lai Kam, which prints "Made in Vietnam" labels slapped on Nike, Puma, Yonex and Levi's products.

Production of shoes, phones and furniture is slowing, with state-controlled media reporting some laid-off workers have already started returning to their villages, as seen in 2021 -- but for a different reason. A year ago almost to the day, employees who had been sleeping at factories fled to the countryside when Vietnam lifted a severe COVID lockdown that had kept workers on-site.

Now the economy has grown 13.7% in the third quarter, albeit from a low base a year earlier, but most predict a slower fourth quarter.

"This year the market is not just slow, but dead," said Megha Khemka, director of cotton supplier S.P. Yarns, who was in Ho Chi Minh City for a recent trade expo. Meters away, vendors showed off wares, with conveyor belts dangling blouses and printers the size of cars spitting out sheets of fabric designs.

Vietnam's exports decreased "more sharply" than expected, Goldman Sachs said, hitting $29.9 billion last month, the second-lowest this year. Malaysia's Maybank said computers, mobile devices and related parts "were the main drags, amid a slump in global demand."

High inventories and declining consumption in importing countries will cut demand for Asia's exports more generally, the World Bank said. It forecast regional economies will expand 3.2% this year, rather than the 5% projected in April.

Khemka's India-based company has clients in Indonesia, Bangladesh and Vietnam that produce garments for retailers like Europe's H&M and Primark. She said in an interview the pullback in spending is being felt up and down the industry.

"It's very visible," she told Nikkei Asia. "It's not just news we read about, it's happening,"

In a research note, Maybank predicted Vietnam's fourth-quarter growth would decelerate to 5.7%. "External headwinds will intensify next year and dampen domestic growth, owing to rising recessionary risks in the U.S. and EU on aggressive Fed tightening and supply disruptions from the Russia-Ukraine war," it said. Europe and the U.S. are the Southeast Asian country's biggest customers.

Although headwinds are blowing across much of Asia, Vietnam is especially affected. Its foreign trade was equivalent to 208% of gross domestic product in 2020 -- the region's highest level outside of shipping hubs Singapore and Hong Kong, according to Our World in Data.

Volatility abroad is "putting great pressure on the Vietnamese economy," General Statistics Office Director Nguyen Thi Huong said at a news conference when GDP data was released. Huong said companies still need help recovering from the pandemic, such as through a low-interest loan program that has disbursed less than 1% of its 2022 target.

In the fall of 2021, factory employees like Anh's had to live at work to prevent the spread of COVID, but at least they had plenty of work making clothing labels.

"Last year at this time, even when we were in lockdown, we had orders," she said. Still, she is optimistic that demand will eventually recover to normal -- but not before at least two more holiday shopping seasons pass.

Tags: All Chemicals,All Feedstocks,All Plastics,All Products,AlwaysFree,Americas,Asia Pacific,English,Europe,SEA,Vietnam

Published on October 19, 2022 11:00 AM (GMT+8)
Last Updated on October 19, 2022 11:00 AM (GMT+8)