Vietnamese manufacturing sector experiences growth in 2024

Reports of shipping delays caused delivery times for suppliers to lengthen and added pressure to costs. Despite facing higher input prices, companies decided to lower their charges in an effort to stimulate demand.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) climbed above the 50.0 no-change mark in January, rising from December's 48.9 to 50.3. While this indicated a marginal improvement in the health of the manufacturing sector, it marked the first such improvement in five months, S&P Global said in a press release.

The overall improvement in business conditions centred around expansions in new orders and production. Total new business increased for the first time in three months, reflecting signs of demand recovery in both domestic and export markets (new export orders expanded for the first time since last October).

As a response, firms increased their production volumes, ending a four-month sequence of decline. The expansion in output was most pronounced in intermediate goods producers.

The modest increases in output and new orders resulted in firms maintaining their staffing levels and purchasing activity largely unchanged at the beginning of 2024. However, the combination of this stability and a renewed rise in new orders led to the accumulation of backlogs of work for the second consecutive month, with the rate of accumulation being the most significant since March 2022.

Some companies chose to fulfil orders by distributing finished goods directly to customers, leading to a decrease in post-production inventories after no change at the end of 2023. Stocks of purchases also decreased due to rising production requirements and relatively steady purchasing activity. The reduction in pre-production inventories was substantial, marking the steepest decline since June of the previous year.

Shipping delays and transportation issues contributed to a marginal lengthening of suppliers' delivery times in January, representing the first decline in vendor performance in just over a year. These transportation issues, which also caused delivery delays, led to higher shipping costs at the start of the year, resulting in a further notable increase in input prices. Manufacturers also reported increased fuel costs.

Although input costs continued to rise significantly, Vietnamese manufacturers responded by lowering their selling prices slightly in a bid to stimulate demand. This marked the end of a five-month sequence of inflation.

Confidence in the outlook for production in the year ahead dipped to a seven-month low, falling below the series average as some firms expressed concerns about economic conditions. Nonetheless, manufacturers retained an overall sense of optimism, driven by hopes for improved demand, increased customer numbers, and the planned launch of new products.

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. There were various reports of issues with transportation and shipping in January, resulting in delivery delays and higher costs. Firms lowered their own selling prices, however, which suggests that demand conditions remain relatively muted.”

ALCHEMPro News Desk (KD)