Vietnam manufacturing slightly stabilises despite second month of contraction

Factory output rebounds as tariff uncertainty eases, but export orders remain under pressure.

Vietnam's manufacturing sector contracted for the second consecutive month in May, though conditions showed signs of stabilising as US tariff policies became more predictable compared to the previous month.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) rose to 49.8 in May from 45.6 in April, signalling a near-stabilisation of business conditions despite remaining below the 50.0 threshold that separates growth from contraction.

Manufacturing output returned to growth in May following April's decline, with companies reporting that greater stability around tariff policies helped support renewed production increases. Capacity improvements also contributed to the uptick in output.

However, new orders continued to decline for the second straight month, with survey respondents attributing the drop to ongoing tariff impacts and weak market demand. Export orders were particularly affected, falling at a much faster pace than total new orders.

"The news around tariffs continues to play a key part in determining trends in the Vietnamese manufacturing sector," said Andrew Harker, Economics Director at S&P Global Market Intelligence. "May saw a more stable picture in terms of US tariff policies than April, helping lead to a renewed expansion in output and improved business confidence."

The manufacturing sector shed jobs for another month as reduced workloads and staff resignations took their toll. However, the employment decline was marginal and represented the slowest rate of job losses since October 2024, as companies made efforts to support production growth.

In a positive development for manufacturers, input costs fell for the first time in 22 months as suppliers offered discounts in the subdued demand environment. This marked the first decrease in input prices since July 2023.

Manufacturers passed on some of these savings to customers, continuing to lower their selling prices for the fifth consecutive month, though the May reduction was modest.

Whilst business confidence improved in May due to more stable tariff policies, many manufacturers remained concerned about potential tariff impacts. Business sentiment stayed well below the series average, reflecting continued uncertainty about trade conditions.

Companies slightly increased their purchasing activity in May, ending a two-month contraction, though they continued to reduce both input and finished goods inventories. Firms reported reluctance to hold stock and focused on prompt shipment of products to clients.

"Manufacturers remained wary of the impact of tariffs and again saw a marked reduction in new export orders, which contributed to a continued decline in new business overall," Harker noted.

As Vietnam approaches the midpoint of 2025, the manufacturing sector's performance will likely continue to hinge on US trade policy developments and their impact on export demand.