Vietnam's manufacturing sector records 15-year selling price hike amid Middle East tensions

The Middle East war caused a marked acceleration in the Vietnamese manufacturing sector's rate of input cost inflation during March, with selling prices subsequently raised at the fastest pace in almost 15 years, according to S&P Global.

"Given the country's reliance on oil imported from the affected region, the impact on prices and supply chains would have been expected to some extent," Andrew Harker, economics director at S&P Global Market Intelligence, wrote in a release on Wednesday.

"Output and new orders remained in expansion territory in March, but rates of increase were well down on February and at least some of the growth seen was due to customers placing advanced orders to try to get ahead of price rises. The near-term outlook therefore appears bleak, unless a speedy resolution to the war and the disruption through the Strait of Hormuz can be achieved," he added.

Intensifying price pressures acted to limit demand, and rates of growth in both new orders and output slowed as a result. In turn, employment and purchasing activity were scaled back.

Meanwhile, suppliers' delivery times lengthened substantially. The impacts of the war also resulted in weaker business confidence, with optimism easing to a six-month low, according to the release.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) remained above the 50.0 no-change mark in March, extending the current sequence of improving business conditions to nine months.

The PMI dropped to 51.2 from February's 54.3 and pointed to the least marked strengthening of operating conditions since last September. A key feature of the March PMI survey was the impact of the war in the Middle East on inflation.

An increase in the price of oil resulted in higher costs for freight, fuel and transportation. As a result, close to half of respondents recorded an increase in their input costs during March, with the pace of inflation the sharpest since April 2022.

With higher input costs often passed on to customers, output prices increased at one of the sharpest rates since the survey began in 2011. The pace of inflation seen in March was the steepest in just under 15 years, S&P Global analysts noted.

Sharply rising prices in the sector acted to limit demand. Total new orders continued to rise as some firms reported that clients had purchased in advance to try to get ahead of price increases. The rate of expansion was only modest, however, and the weakest since last September.

Meanwhile, international demand suffered, with new export orders decreasing markedly following stable new business from abroad in February. In line with the picture for total new business, manufacturing production increased at a much-reduced pace during March.

The latest rise in output was the 11th in as many months, but least pronounced since June 2025. Slower growth of new orders and higher input costs led to a reluctance among manufacturers to commit to additional purchases in March.

Input buying decreased markedly, ending an eight-month sequence of expansion. Stocks of purchases were also down. Where firms did buy inputs, they faced a substantial lengthening of suppliers' delivery times, one that was the most pronounced in four years.

Respondents indicated that higher fuel costs resulted in transportation delays. As well as scaling back purchasing activity, manufacturers also signalled a reduction in employment. Staffing levels decreased for the first time in six months. Firms reported difficulties replacing departing staff members, and a drop in the number of temporary workers.

With employment down and firms facing difficulties securing materials, backlogs of work increased in March. The slight accumulation was the first in four months. In some cases, manufacturers used stocks of finished goods to help satisfy order requirements, resulting in a marked fall in post production inventories.

Business confidence dropped to a six-month low in March amid concerns around the impact of the war in the Middle East on international demand, prices and the supply of materials.

"That said, hopes that underlying demand would remain solid and support growth of new orders and output meant that firms on balance continued to predict an increase in production over the coming year," S&P Global analysts added.

In an analysis published on Tuesday, VinaCapital stated that they estimate the damage that the month-long U.S.-Israel-Iran war has already done to Vietnam’s economy are a 2 percentage point increase in inflation and a 1.5 percentage point reduction for GDP growth, unless the Government takes decisive actions to support the economy and limit petrol price increases, including bigger petrol price subsidies than it has done in the past (petrol subsidies in Vietnam never exceeded 0.5%/GDP vs ~3%/GDP in Indonesia).

Those economic impact estimates assume that the conflict will wind down within the next 2-3 weeks (with a resumption of ships passing through the Strait of Hormuz), and then it takes another 4-5 months for global energy markets to normalize.