Manufacturing production rises for first time in five months

The S&P Global Vietnam Manufacturing Purchasing Managers' Index moved back above the 50 point no-change mark at the start of the year, rising to 50.3 points from 48.9 points in December. The reading pointed to a first improvement in the health of the manufacturing sector for five months, but one that was only marginal nonetheless.

The overall improvement in business conditions was centred on renewed expansions in new orders and production. The rise in total new business was the first in three months amid signs of demand recovering in both domestic and export markets. New export orders also expanded for the first time since last October.

In turn, firms increased their production volumes, thereby ending a four-month sequence of decline. The rise was slight, but the most marked since September 2022. The overall expansion in output was centred on intermediate goods producers.

The slight nature of the increases in output and new orders meant that firms kept their staffing levels and purchasing activity broadly unchanged at the start of 2024.

The combination of this broadly stable picture regarding operating capacity and a renewed rise in new orders meant that backlogs of work built up for the second month running during January. Although slight, the rate of accumulation was the most pronounced since March 2022.

Some firms opted to satisfy orders by distributing finished goods to customers. As a result, post-production inventories decreased following no change at the end of 2023.

Stocks of purchases also decreased amid a combination of rising production requirements and broadly unchanged purchasing activity. The reduction in pre-production inventories was solid and the steepest since June last year.

Andrew Harker, economics director at S&P Global Market Intelligence said, “It was an encouraging start to 2024 for the Vietnamese manufacturing sector, with some welcome improvements in new orders and production. The respective increases were only marginal, however, and not sufficient to entice firms to take on additional staff or expand purchasing. The lack of an expansion to operating capacity meant that backlogs of work continued to build."

According to S&P Global, confidence in the year ahead outlook for production dropped to a seven-month low and was below the series average as some firms expressed worries about economic conditions. Manufacturers remained optimistic overall, however, amid hopes of improvements in demand and customer numbers, plus the planned launch of new products.

On January 16, Trelleborg Marine & Infrastructure broke ground on a new manufacturing facility in the Phu My 3 Specialised Industrial Park (IP) in the province of Ba Ria-Vung Tau.

Manufacturers in key industries are grappling with rising costs and plummeting demand that is weakening manufacturing and export activities.

On January 17, German tyre manufacturer Schwalbe announced that the company is strategically realigning its production and will manufacture all its tyres and tubes exclusively in Vietnam in the future.