Vietnam factory activity contracts after 2-month improvement: S&P Global

Vietnam’s manufacturing sector slightly decreased in March due to weaker demand after recording marginal improvements in the first two months of the year while confidence in the outlook for the year ahead hit an 18-month high.

The country’s Manufacturing Purchasing Managers' Index (PMI) dipped below the 50.0 no-change mark in March, posting 49.9 after a reading of 50.4 in February, S&P Global said in its monthly note.

The index signaled an end to the two-month period of improving business conditions at the start of 2024, but “pointed to broadly unchanged operating conditions overall,” it noted.

Demand weakened in March, leading to a drop in new orders. New export orders were also down, and to the greatest extent since July 2023 amid competitive pressures and geopolitical issues.

With new orders down, firms also scaled back production at the end of the first quarter of the year, following growth in January and February. The drop in production was only marginal, however, and limited to intermediate goods firms as expansions were recorded at consumer and investment goods producers.

Despite the weakness seen in March, manufacturers were increasingly confident that production will increase over the year ahead. Optimism was the strongest in 18 months.

Firms expect the launch of new products to boost output, while also hoping that an improvement in market demand will help to support new order growth.

Manufacturers also stepped up their recruitment efforts in March, raising employment for the second month running and at the fastest pace since October 2022.

Lower output requirements led firms to reduce their purchasing activity in March, the fifth month running. In turn, stocks of inputs decreased solidly.

Manufacturers reduced their selling prices for the second time in the past three months. The marginal decline in March followed a slight increase in February and reflected a combination of competitive pressures, subdued demand and softer cost inflation.

“Growth stalled in the Vietnamese manufacturing sector in March as subdued demand put the brakes on new orders and production. Demand weakness was also reflected in the PMI survey's price indices as input cost inflation slowed and an outright reduction in selling prices was recorded,” said Andrew Harker, economics director at S&P Global Market Intelligence.

“On a more positive note, firms are increasingly optimistic that the sector will move back into gear in the months ahead, and this confidence helped to drive accelerated job creation at the end of the first quarter," he added.

Vietnam’s index of industrial production (IIP) rose 4.1% year-on-year in March and 5.7% in January-March, still driven by the manufacturing-processing sector, according to government data.