Manufacturing activity rises on rebound in new orders

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) rose back above the 50 point no-change mark in April, posting 50.3 point from 49.9 in March. The reading signalled a marginal improvement in the health of the sector, the third time in the past four months in which this has been the case.

The main positive from the latest survey by S&P Global was a rebound in new orders, which increased solidly following a fractional decline in the previous month. Moreover, the rate of expansion was the fastest since August 2022. Panellists reported improvements in market demand and success in securing new customers.

New export orders also returned to growth, but the latest rise was only marginal and softer than that seen for total new business.

Also helping manufacturers to register a rise in new orders was a second successive monthly reduction in selling prices amid efforts to price competitively and respond to requests from clients for discounts. The latest decrease in charges was the most marked in nine months.

Firms carried out price discounting despite a further increase in input costs, but the rate of input price inflation was relatively muted, providing some space for firms to lower charges without incurring too much pressure on margins. Where input costs increased, panellists often mentioned higher oil and shipping prices. There were also some reports of rising sugar costs.

The solid expansion in new orders helped lead to a return to growth of manufacturing production in Vietnam. That said, the rate of expansion was only marginal.

Despite the pick-up in new orders and output in April, recent muted demand conditions led firms to scale back employment for the first time in three months, often reflecting the release of temporary workers.

That said, coming at a time when new orders rebounded, the reduction in staffing levels meant that firms have found it harder to complete orders on time. As a result, backlogs of work increased for the first time in three months, albeit marginally.

Andrew Harker, economics director at S&P Global Market Intelligence, said, “There was a welcome return to growth of new orders in the Vietnamese manufacturing sector during April following recent weakness. There were some signs that the extent of the rebound perhaps took firms by surprise given that they had decided to release workers following the recent period of muted demand conditions, thus resulting in a build-up of backlogs. We could therefore see some of these workers brought back in the near future."

"More generally, the recent up and down nature of new order inflows was a concern for firms looking forward. We will hopefully see a more stable environment in the months ahead, helping manufacturers to plan production and resourcing effectively," Harker added.

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