Vietnam factory activity returns to growth zone after 6 months: S&P

Vietnam's manufacturing sector is continuing on its road to recovery, with the Manufacturing Purchasing Managers' Index (PMI) bouncing back to above the 50.0 neutral mark for the first time in six months in August, S&P Global reported on Tuesday.

The reading improved to 50.5 last month, up from 48.7 in July, indicating a marginal monthly improvement in the sector.

The nascent recovery in the health of the sector was driven by an improvement in demand, evidenced by increases in both new orders and production, S&P Global said in its monthly report.

New orders rose for the first time in six months while new export business also increased following a five-month sequence of declines. Similarly, manufacturing production returned to growth in August, ending a five-month period of falling output.

The financial data provider noted that firms expanded their purchasing activity accordingly at a solid pace, but employment continued to fall marginally as firms were reluctant to take on extra staff given the fragile demand. Workforce numbers in August dropped for the sixth month in a row.

Ongoing reductions in employment reflected continued signs of spare capacity in the sector, with backlogs of work decreasing for the eighth consecutive month, it added.

The report showed that business confidence strengthened midway through the third quarter, with firms hoping for a continued recovery in the months ahead. Optimism in the 12-month outlook for production was the highest in five months.

The improvement in Vietnam's PMI reading coincided with a 2.9% month-on-month and 2.6% year-on-year in August in the index of industrial production, according to data from Vietnam's General Statistics Office. The index, however, fell 0.4% year-on-year in the first eight months of the year.

“The latest S&P Global Vietnam Manufacturing PMI paints a more encouraging picture regarding the health of the sector than had been the case in recent months, with output, new orders, exports and purchasing all returning to growth. Improvements were generally still quite muted, however, as demand conditions remained fragile. It is probably too early to say, therefore, that the sector is in full recovery mode,” commented Andrew Harker, economics director at S&P Global Market Intelligence.