Vietnam manufacturing index grows strongest in a year

By An Le
Wed, June 1, 2022 | 3:47 pm GMT+7
A panoramic view of Ho Chi Minh City at sunset. Photo courtesy of the government's portal.

A panoramic view of Ho Chi Minh City at sunset. Photo courtesy of the government's portal.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) rose to 54.7 in May from April's six-month low of 51.7, marking the eighth straight month of expansion and the strongest growth since April 2021.

This demonstrated that Vietnam’s production and business conditions have improved at the best level in more than a year, IHS Markit, an information services provider under S&P Global, noted in a report.

A reading above 50 indicates an expansion of the manufacturing sector compared to the previous month; below 50 represents a contraction; while 50 indicates no change.

In particular, output recorded the strongest and fastest growth rate in the last 13 months owing to a considerable rise in new orders as demand improves post-pandemic.

Export orders retained strong growth despite the effect of China's zero-Covid policy, driving up May's output. This has prompted manufacturers to increase recruiting for the second straight month, and at a solid pace that proved the fastest in 13 months.

Meanwhile, purchasing activity rose in response to new orders growth, with the rate of expansion quickening to a three-month high. Given the strong and rapid increase in new order output, stocks of input items fell for the second month in a row. Finished product inventories also fell, marking the second substantial drop in the last 10 months.

The consumer price index's growth rate slowed in May, with both input costs and output prices growing at the weakest rate in three months. However, rising oil and gas prices, as well as shipping charges, have forced enterprises to pass the pricing burden to customers by boosting selling prices, according to IHS Markit.

Delays in raw material delivery have worsened since last month due to China's stringent embargo, and supply chain disruptions are ongoing issues for the enterprises.

Looking ahead, business confidence strengthened for the second consecutive month, and reached its highest level since January, supported by optimism in the outlook for production, the report added.

Credit rating agency S&P Global Ratings in late May revised up Vietnam’s long-term sovereign credit rating to BB+, a "stable" outlook. Vietnam is one of only two economies in the Asia-Pacific region to have been upgraded since the beginning of the year, the other being Taiwan.

The S&P’s upgrade was based on Vietnam’s steady economic recovery prospects following the progressive lift of domestic and cross-border mobility restrictions, outstanding improvement in vaccination rates, and flexible shift in Covid-control policy.

The agency predicted Vietnam's real GDP growth of 6.9% in 2022, with a long-term trend of 6.5-7% from 2023 onward.

ADB predicted that Vietnam's economy would improve in 2022, with growth reaching 5.5-6% and maybe higher in 2023. However, inflation is expected to rise substantially, probably to 3.8-4.2% in 2022 and maintain at 4% in 2023.

World Bank in April lowered Vietnam’s 2022 GDP projection to 5.3% due to challenges in terms of rising Covid-19 infections and the country’s vulnerability to external shocks driven by its high economic openness. This estimation is much lower than that of other international institutions.

The PMI measures the performance of the manufacturing sector and is derived from a survey of 400 production companies. The Index is based on five individual indexes with the following weights: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stock of Items Purchased (10%), with the Delivery Times index inverted so that it moves in a comparable direction.

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