Typhoon Yagi disruption leads to fall in Vietnam’s factory activity

Vietnam’s manufacturing activity contracted in September, with output, new orders, purchasing and stocks of inputs all declining, as typhoon Yagi caused temporary business closures and delays across production lines and supply chains.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) fell to 47.3 from 52.4 in August, and pointed to the most marked worsening in the health of the sector since November last year.

Typhoon Yagi caused a marked reduction in manufacturing production in September, ending a five-month sequence of expansion. After output had increased sharply in August, the renewed decline in the latest survey period was the most pronounced since January 2023.

The typhoon, the most powerful in Asia this year, also led to a similarly-sized drop in new orders. New export orders dipped, but the rate of contraction was only marginal and much weaker than that seen for total new business as international demand held up relatively well.

With output and new orders down, firms scaled back their purchasing activity for the first time in six months, S&P Global, a U.S.-based market intelligence company, said in its monthly report.

Those manufacturers that did make purchases during the month were faced with a marked lengthening of suppliers' delivery times as flooding disrupted transportation. As a result, stocks of purchases decreased rapidly.

Furthermore, the reduction was the second-steepest in the series history, only just behind the pandemic-affected month of April 2020. Stocks of finished goods were also down in September.

With the disruption caused by typhoon Yagi expected to be only temporary, manufacturers remained optimistic that output will increase over the coming year. In fact, sentiment ticked up to a three-month high, with firms confident that demand will strengthen.

Positive expectations and marked rises in new orders in previous months led manufacturers to expand their staffing levels slightly in September, following a fall in the previous month. Employment has increased in three of the past four months.

“The severity of typhoon Yagi had a major impact on the Vietnamese manufacturing sector as heavy rain and flooding caused temporary business closures and delays to both supply chains and production lines. The storm brought an end to a period of strong growth in the sector,” said Andrew Harker, economics director at S&P Global Market Intelligence.

"The underlying demand picture should remain conducive to growth, however, meaning that we could see a quick rebound in the sector as the recovery from the storm begins. As such, firms remained optimistic in the year-ahead outlook and increased employment even as workloads fell," Harker added.

The Vietnamese government is due to release its data for industrial production and GDP for September and the first three quarters of this year later this week.

In August, the industrial production index likely increased 2% month-on-month and 9.5% year-on-year, resulting in an 8.6% improvement in January-August.