Vietnam sees renewed output expansion, improved business confidence in May: S&P Global

May saw a more stable picture in terms of U.S. tariff policies than April, helping lead to a renewed expansion in output and improved business confidence, says Andrew Harker, economics director at S&P Global Market Intelligence.

But the news around tariffs continues to play a key part in determining trends in the Vietnamese manufacturing sector, Harker added in a note released on Monday by S&P Global.

"Manufacturers remained wary of the impact of tariffs and again saw a marked reduction in new export orders which contributed to a continued decline in new business overall. Another noteworthy aspect of the latest PMI survey was a first fall in input costs for almost two years as suppliers offered discounts in a subdued demand environment," he noted.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index posted below the 50.0 no-changemark for the second consecutive month in May, but rose to 49.8 from 45.6 in April to signal a near-stabilization of business conditions in the sector.

New export orders fall markedly again in May

New orders continued to fall in the Vietnamese manufacturing sector in May as U.S. tariffs reportedly impacted demand for exports in particular, according to S&P Global.

That said, output returned to growth and overall business conditions were broadly unchanged as some firms noted greater stability in tariff policy than had been the case in April.

Meanwhile, muted demand conditions contributed to a first reduction in input costs in the sector for 22 months and firms continued to lower their own selling prices.

As was the case in April, new orders decreased during May, with survey respondents linking the latest fall to tariffs and subdued market demand.

"The impact on demand was most keenly felt in export markets, with new business from abroad declining at a much faster pace than total new orders. The fall in new export orders was broadly similar to that seen in April, while the reduction in total new business was softer than in the previous month," the release noted.

While new orders continued to fall, output returned to growth in May following a decline in April. Greater stability around tariff policies reportedly helped to support the renewed rise in production, while capacity improvements were als omentioned.

In a similar vein to the trend in production, business confidence improved in May amid more stable tariff policies.That said, a number of respondents remained concerned about the potential impact of tariffs, meaning that business sentiment remained well below the series average.

Reduced workloads and staff resignations contributed to a further fall in employment in Vietnam's manufacturing sector. That said, efforts to support production growth meant that the latest decrease was only marginal and the slowest since last October, S&P reported.

Meanwhile, backlogs of work continued to fall amid lower new orders, but the rate of depletion eased to the weakest in the current five-month sequence of decline.

Efforts to expand output meant that manufacturers increased their purchasing activity slightly in May. The increase in input buying ended a two-month sequence of contraction.

Despite the rise in purchasing, stocks of inputs were scaled back again, albeit to the least marked extent since August 2024.

Stocks of finished goods were also down, as firms reported a reluctance to hold inventories and the prompt shipment of products to clients.

Meanwhile, suppliers' delivery times lengthened slightly in May as respondents noted slow traffic.

A muted demand environment led some suppliers to offer discounts on their products during May, thereby resulting in a reduction in input costs over the course of the month.

The fall in input prices was the first since July 2023. With input costs down, manufacturers continued to lower their own selling prices midway through the second quarter.

Charges have now decreased in each of the past five months, with output prices down modestly again in May, S&P added.

The Vietnamese Government is persistent with its 8% growth goal though disadvantages outweigh advantages, with a focus on solutions to respond to U.S. reciprocal tariffs, PM Pham Minh Chinh told a cabinet meeting on May 6.

The national economy expanded 6.93% in Q1, the highest growth since 2020, according to the General Statistics Office.