Vietnam's manufacturing output grows fastest in 13 years

Whilst 40% of the respondents expressed optimism, sentiment eased to the lowest since July.

Vietnam's month-on-month growth rate in manufacturing output increased in July, making it the second-highest on record, surpassed only by March 2011, according to data from S&P Global.

"A further substantial rise in new orders led manufacturers to ramp up production, with the rate of growth quickening to a near-record high," the company said in its latest report on Vietnam’s manufacturing.

The country’s Purchasing Managers’ Index in July was at 54.7, unchanged from June, and the last time growth was faster was in November 2018.

A PMI of above 50 indicates an expansion in manufacturing PMI.

"New orders increased for the fourth month running in July, with the rate of expansion only slightly slower than the near-record posted in June."

S&P linked this to stronger market demand and an increase in customer numbers.

New export orders also rose, but some firms reported that export demand had been hampered by high shipping costs.

To fulfill a surge in demand, firms needed to dip into existing stockpiles to help meet new order requirements. Stocks of finished goods were depleted to the second-largest degree on record, behind only that seen in February 2014.

Firms expanded capacity by increasing both their purchasing activity and employment at the start of the third quarter. Whilst input buying rose markedly, staffing levels increased only modestly and at a softer pace than in June.

Input costs continued to shoot up during July, with the pace of inflation marginally weaker than the two-year high seen in June.

Suppliers had reportedly raised their charges, while increased shipping costs were also a factor.

Rising costs for raw materials and shipping meant that manufacturers increased their selling prices for the third month running in July.

Expectations that new orders will continue to rise over the coming year supported confidence in the outlook for production. Around 40% of respondents expressed optimism, but sentiment eased to the lowest since January and was weaker than the series average.

"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," said Andrew Harker, economics director at S&P Global Market Intelligence.