Vietnam manufacturing activity ends 2023 in contraction mode: S&P Global

The Vietnamese manufacturing sector ended 2023 in contraction mode due to weak demand, according to latest S&P Global PMI data.

The Vietnam Manufacturing Purchasing Managers' Index (PMI) posted 48.9 in December, improving from 47.3 in November, but still below the 50.0 no-change mark.

The December performance marked a fourth consecutive monthly decline in business conditions in the sector and pointed to a softer rate of deterioration.

The health of the sector worsened through much of 2023, improving only in February and August. The average PMI reading across the year was the lowest since the Covid-19 pandemic outbreak in 2020.

Recent price rises reportedly deterred customers, and firms responded by raising their charges only fractionally in December despite a further marked increase in input costs.

The latest decline in operating conditions again reflected a subdued demand environment, with total new orders down for the second month running in December.

With new orders decreasing in a challenging demand environment, manufacturers cut their production volumes again in December, extending the current sequence of decline to four months.

Firms predicted that output will expand over the course of 2024, thanks to hopes for a recovery in demand both domestically and in export markets, plus business expansion plans. Sentiment hit a three-month high but was still below the series average.

Hopes for growth of output in 2024 meant that firms kept their employment and purchasing activity broadly stable in December despite falls in new orders.

Some firms saw stocks of unsold products increase due to falling new orders, but others scaled back production accordingly to prevent a build-up of inventories. Meanwhile, backlogs of work increased for the first time in a year, and to the greatest extent since May 2022.

“The final month of the year was indicative of the picture for much of 2023 in the Vietnamese manufacturing sector, with subdued demand limiting production volumes,” said Andrew Harker, economics director at S&P Global Market Intelligence.

“Attention now turns to the prospects for 2024, with firms still optimistic on balance that output will expand. This led to broad stability of employment and purchasing activity despite the reductions in new orders, as manufacturers attempt to maintain capacity in the hope of better days to come,” added Harker.

An improvement in Vietnam’s December PMI was in line with a recovery in the country’s index of industrial production (IIP), which rose 5.8% year-on-year in December, while the January-December index inched up 1.5%, according to government data.