Vietnam factory activity accelerates on new order surge: S&P Global

The rate of expansion in the Vietnamese manufacturing sector accelerated sharply in June as new orders rose at one of the fastest rates on record, prompting firms to ramp up production and purchasing activities.

Vietnam’s Manufacturing Purchasing Managers' Index (PMI) surged to 54.7 in June from 50.3 in May, signaling a third consecutive monthly improvement in the health of the sector and a marked strengthening of business conditions, S&P Global said in a monthly note.

The strengthening of business conditions reflected substantial increases in both output and new orders at the mid-point of the year, the agency added.

In particular, new orders rose to an extent only exceeded during the opening month of data collection for the survey in March 2011. New export orders increased at the fastest pace since February 2022. The acceleration in growth of new orders was matched by manufacturing production, with June seeing the steepest increase in output for just over five-and-a-half years.

To meet stronger demand, firms raised workforce numbers for the first time in three months and expanded their purchasing activity, with input buying increasing for the third month running and at the fastest pace since June 2022.

The prospect of favorable business conditions continuing supported confidence in the year-ahead outlook for manufacturing output. Sentiment hit a three-month high, with around half of respondents predicted an expansion.

“The Vietnamese manufacturing sector burst into life at the midway point of the year, shrugging off the relatively modest growth seen in recent months thanks to a rapid increase in new orders,” Andrew Harker, economics director at S&P Global Market Intelligence, commented.

“The growth spurt was accompanied by higher cost burdens, with increased transportation costs in particular acting to push input price inflation to a two-year high. Rising inflation could act to dampen demand further down the line, but for now firms will be enjoying the influx of work experienced in June,” he added.

The June PMI improvement coincides with a month-on-month increase of 10.9% in Vietnam’s index of industrial production (IIP) in the same month. The reading rose 7.7% year-on-year in the first half of 2024, according to government data.