Vietnam factory continues strong growth in July: S&P Global

The strong growth of Vietnam's manufacturing sector seen in June continued into July, driven by a further substantial rise in new orders, according to S&P Global.

The country's Manufacturing Purchasing Managers' Index (PMI) was unchanged at 54.7 in July, the fastest since November 2018, signaling a further marked strengthening of business conditions in the local manufacturing sector, S&P Global said in a monthly report.

Marked improvements were recorded across the consumer, intermediate and investment goods categories, it added.

Thanks to stronger market demand and an increase in customer numbers, new orders rose for the fourth month running in July, with the rate of expansion only slightly slower than the near-record posted in June.

New export orders also increased, albeit at a much softer pace than total new business. Some firms reported that export demand had been hampered by high shipping costs.

With new orders rising sharply, manufacturers ramped up production in July. Moreover, the rate of expansion in output quickened from that seen in June and was the second-fastest on record, just behind that seen in the opening month of data collection in March 2011.

To meet new order requirements, firms made efforts to expand capacity by increasing both their purchasing activity and employment at the start of the third quarter. Input buying rose significantly, and at the fastest pace since May 2022.

Input costs continued to increase sharply during July, with the pace of inflation only marginally weaker than the two-year high seen in June. Suppliers had reportedly raised their charges, while increased shipping costs was also a factor.

Rising costs for raw materials and shipping meant that manufacturers increased their own selling prices for the third month running in July. The rate of inflation was solid, albeit softer than that seen in the previous survey period.

Expectations that new orders will continue to rise over the coming year supported confidence in the outlook for production. Around 40% of respondents expressed optimism, but sentiment eased to the lowest since January and was weaker than the series average.

“The fact that the Vietnamese manufacturing sector was able to sustain the strong expansion seen in June through into July adds to optimism that we are at the start of a good spell of growth that will help drive the wider economy forward,” commented Andrew Harker, economics director at S&P Global Market Intelligence.

He highlighted that the main issue for firms at present is keeping up with demand. “Manufacturers will need to expand workforce numbers more quickly and continue to secure additional materials should current trends in new orders be sustained in the months ahead,” said Harker.

The PMI’s continued strengthening coincided with an 8.5% year-on-year expansion of the country’s January-July index of industrial production, buoyed by a 9.7% increase of the manufacturing sector.