Vietnam manufacturing PMI jumps to 52.8; stockpiling masks fragile recovery
This is its highest reading since February — the month before the Middle East conflict erupted.
Vietnam’s manufacturing sector returned to solid growth in May, extending an impressive eleven-month expansion streak — though analysts warned that war-driven stockpiling rather than genuine end demand was flattering what might otherwise be a more fragile recovery.
The S&P Global Vietnam Manufacturing PMI rose to 52.8 in May from 50.5 in April, its highest reading since February — the month before the Middle East conflict erupted.
The improvement was broad-based, driven by a rebound in new orders and a marked acceleration in production, but the underlying picture was complicated by evidence that much of the fresh demand reflected customers building safety stocks rather than actual consumption.
New orders, which had fallen modestly in April, returned to growth in May and expanded at the sharpest rate in three months. Manufacturers attributed at least part of the rise to clients placing precautionary orders in anticipation of prolonged supply disruption and further price increases stemming from the war.
Export orders also returned to growth after two months of decline, though the recovery was only marginal, constrained by high transportation costs and persistent logistics difficulties.
Output rose markedly for a thirteenth consecutive month, with the rate of expansion the fastest since February. Manufacturers themselves joined the stockpiling trend, increasing their purchasing activity for the first time in three months at a solid pace — though ongoing supply-chain pressures meant that pre-production inventories continued to fall, doing so at the fastest rate in nearly a year as lengthening delivery times outpaced the rise in buying.
Stocks of finished goods also declined, albeit less sharply than in April. Supplier delivery times lengthened again, as higher fuel and shipping costs, combined with logistical bottlenecks, weighed on vendor performance. The deterioration was less severe than in April but remained a significant drag on the sector. Cost pressures intensified further.
Input price inflation accelerated for a fourth successive month to its fastest pace since April 2011, driven primarily by dearer fuel, oil and transportation.
Selling prices also rose at one of the sharpest rates in 15 years, easing only slightly from April’s elevated level. Despite the improvement in orders and output, firms continued to shed jobs for a third consecutive month, albeit only marginally.
Backlogs of outstanding work fell for a second successive month as companies with sufficient spare capacity worked through existing commitments without needing to take on additional labour.
Business confidence in the twelve-month outlook improved to a three-month high, with firms pointing to hopes of rising orders and business expansion.
Sentiment nonetheless remained relatively subdued, reflecting persistent anxiety over the war’s continuing impact on costs and supply chains.
“Digging a little deeper sounds a note of caution, with at least some of the growth in May driven by stockpiling efforts amid the disruption caused by the war,” said Andrew Harker, Economics Director at S&P Global Market Intelligence.
“Meanwhile, firms continue to face elevated price pressures, with input cost inflation accelerating again after hitting a 15-year high in April. How events unfold elsewhere will again be central to determining the sector’s performance over the months ahead.”
