Vietnam’s Feb production returns to growth: S&P Global

Vietnam’s industrial sector improved in February, recording a manufacturing PMI score of 51.2, up from 47.4 in January and 46.4 in December, showing a return of production growth, S&P Global announced on Wednesday.

The latest gain exceeds the boom-or-bust line of 50 that separates expansion from contraction, said the market information and analysis giant. PMI stands for the global firm’s Purchasing Managers' Index.

Latest data signaled a return to growth of the Vietnamese manufacturing sector as new orders fueled increases in output, employment and purchasing activity. Demand improvements led business confidence to strengthen for the third month running, S&P Global said in a report.

Meanwhile, cost pressures continued to build, with input prices rising at the fastest pace since the middle of last year. In turn, firms also increased their selling prices at a sharper pace. Supplier performance, however, improved again.

“Improving demand conditions both domestically and internationally breathed new life into the Vietnamese manufacturing sector during February, snapping a three-month soft patch around the turn of the year,” Andrew Harker, economics director at S&P Global Market Intelligence, said.

“Output, new orders, employment and purchasing activity all returned to growth as business confidence strengthened on an improving demand outlook.

“One lingering area of concern, however, is inflation, with both input costs and selling prices rising at the fastest rates in eight months in February. Firms will be hoping to see these pressures ease as the year progresses to make sure demand improvements can be sustained,” he noted.

Central to the strengthening in the health of the sector were signs of improvement in market demand. This helped firms secure new customers and an expansion of new orders during February, the first in four months. Moreover, the solid increase in new business was the sharpest since last August, S&P said.

New export orders rose more quickly, expanding for the second month running on the back of a brighter international demand environment.

Rising new orders fed through to renewed increases in manufacturing production, employment and purchasing activity midway through the first quarter. The modest increase in output represented a marked improvement from the sharp declines seen around the turn of the year. Underlying data suggested that the rise in output was mainly centered on investment goods producers in Vietnam.

“Both employment and purchasing activity increased for the first time in four months during February, and were up modestly, helping firms to keep on top of workloads,” the report said.

With market demand improving and new orders returning to growth, optimism regarding the year-ahead outlook for production continued to strengthen in the Southeast Asian country, according to S&P.

Sentiment improved for the third month running and was the highest since September 2022.

“Confidence was also stronger than the series average. Some panelists added that the loosening of Covid-19 restrictions in mainland China would also boost growth over the coming year,” the report highlighted.

The rate of input cost inflation quickened for the sixth month running in February, reaching its highest since June 2022 on the back of rising charges by suppliers and material shortages. In turn, manufacturers also increased their own selling prices at the fastest pace in eight months.

While price pressures intensified, there were more positive signs in terms of supply-chain performance. Suppliers’ delivery times were shortened for the second month running amid reports of smoother transportation and reduced congestion.

Vietnam’s General Statistics Office announced on Tuesday that the nation had secured increases of 3.6% and 11% in industrial production and exports, respectively, in February from a year earlier. The February performance comes amid global economic headwinds and declining import orders.

In the first two months of 2023, the country’s manufacturing sector shrank by 6.3% compared to the same period last year, the national statistics agency said.