Typhoon Yagi hits Vietnam’s manufacturing, causing sharp production decline

Full recovery is expected to be delayed until early 2025.

Typhoon Yagi caused a significant decline in Vietnam’s manufacturing production in September, with the northern region experiencing the worst impact.

Despite this setback, the longer-term outlook for the sector remains positive due to previously strong demand conditions, and manufacturing confidence improved during the month.

Manufacturing output across Vietnam dipped sharply as heavy rainfall and subsequent flooding from the typhoon led to temporary business closures and disruptions to production lines. This decline was particularly stark given the sector's strong growth in recent months.

The latest PMI data revealed that northern Vietnam, particularly the Red River Delta region which includes Hanoi, was the most severely affected, ending a five-month period of expansion. In contrast, the area around Ho Chi Minh City in the south continued to see a rise in manufacturing production, albeit at a slower pace.

The typhoon’s impact extended beyond production, affecting various other metrics covered by the PMI survey. New orders declined sharply, ending a five-month streak of growth, while some firms reported difficulties exporting products due to the adverse weather conditions.

Supply chains were also heavily disrupted, as flooding hampered transportation, resulting in the most pronounced lengthening of suppliers' delivery times since mid-2022, when global supply chains were still recovering from the COVID-19 pandemic. This supply chain disruption affected the entire country, unlike the region-specific production downturn.

The challenges in transportation and factory closures led to a significant decline in stocks of inputs. Inventories of purchased items fell at the second fastest pace since the survey began in 2020, when the industry was dealing with pandemic-related restrictions.

The widespread disruption left many firms unable to fulfill orders, causing backlogs of work to accumulate to their highest level in two and a half years.

Despite the severity of the disruption, recent buoyant demand conditions suggest a quick recovery in production once factories resume full operations. Business confidence around future output improved in September, prompting firms to slightly increase their staffing levels.

However, S&P Global Market Intelligence cautioned that uncertainty around how quickly infrastructure can be repaired means a full recovery may not occur until the first quarter of 2025.