Strong manufacturing growth driven by production ramp-up in July

The S&P Global Vietnam Manufacturing Purchasing Managers' Index™ (PMI) remained steady at 54.7 in July, indicating a continued robust strengthening of business conditions in the Vietnamese manufacturing sector. This growth rate was last surpassed in November 2018, with notable improvements across consumer, intermediate, and investment goods categories.

New orders increased for the fourth consecutive month, with the expansion rate only slightly slower than the near-record pace observed in June. The rise in new business was attributed to stronger market demand and an increase in customer numbers. However, new export orders grew at a much slower rate, with some firms citing high shipping costs as a hindrance to export demand.

To meet the surge in new orders, manufacturers ramped up production in July. The output expansion rate was the second-fastest on record, surpassed only by the initial data collection in March 2011. Despite the significant increase in production, firms had to dip into existing stockpiles to fulfill new order requirements, resulting in the second-largest depletion of finished goods stocks on record, following February 2014.

To expand capacity, firms increased their purchasing activity and employment at the start of the third quarter. Input buying rose markedly, reaching the fastest pace since May 2022. However, staffing levels grew only modestly and at a slower rate than in June. Meanwhile, backlogs of work accumulated for the second month in a row.

Manufacturers benefited from a slight improvement in suppliers' delivery times for the second consecutive month, despite some delays in sea transportation. However, stocks of purchases continued to decrease for the eleventh month in a row, with the sharpest decline since April.

Expectations for rising new orders over the coming year bolstered confidence in the production outlook. Approximately 40 per cent of respondents expressed optimism, although sentiment eased to its lowest level since January and was below the series average.

Andrew Harker, economics director at S&P Global Market Intelligence said, "The fact that the Vietnamese manufacturing sector was able to sustain the strong expansion seen in June through into July adds to optimism that we are at the start of a good spell of growth that will help drive the wider economy forward."

"The main issue for firms at present is keeping up with demand. While production was ramped up, firms were still forced to dip into warehouse stocks to help meet new order requirements, resulting in one of the sharpest depletions of inventories on record. Manufacturers will need to expand workforce numbers more quickly and continue to secure additional materials should current trends in new orders be sustained in the months ahead," he added.

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