S&P Global noted the Vietnamese manufacturing sector continued to face challenging business conditions in the opening month of 2023. Production and new orders continued to decline. That said, there were some signs of improvement in demand as new business fell at a softer pace, helped by a renewed expansion in new export orders.
The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI), released on February 1, posted 47.4 in January, up from 46.4 in December but still pointing to a solid monthly deterioration in the health of the manufacturing sector.
January data signalled a further marked decline in manufacturing production, albeit one that was slightly softer than seen in December. Lower new orders were often behind falling output, with some firms indicating that customers had sufficient stock holdings and so didn't need to purchase at present.
Total new orders were down for the third month running in January as demand conditions remained challenging. That said, there were some signs of improvement, particularly with regards to new export orders which rose for the first time in three months. As such, total new business fell at a modest pace that was the softest in the current period of decline.
The cost of raw materials, alongside falling workloads, meant that some firms lowered their purchasing activity again in January. Some signs of improvement in demand conditions encouraged other manufacturers to expand input buying, so that overall purchasing activity was broadly unchanged. Declines in the purchasing of inputs in previous months, however, led to a reduction in stocks of purchases.
Business confidence improved to a three-month high amid hopes that demand conditions will strengthen over the course of the year, feeding through to growth of output. The relaxation of pandemic restrictions in the mainland China was another factor behind the positive outlook. More than half of the respondents were optimistic that production will rise over the next 12 months, according to S&P Global.
Andrew Harker, Economics Director at S&P Global Market Intelligence, said: “Although demand conditions for Vietnamese manufacturing firms remained challenging at the start of 2023, leading to further declines in output, new orders and employment, there were some more positive signs from the latest PMI survey. One of the main positives in January was a renewed expansion in new export orders, with the decline in total new business softening as a result.
“The loosening of COVID-19 restrictions in Mainland China, plus signs that downturns in Europe and the US may be less severe than feared, provided optimism that growth in Vietnam could be around the corner. Indeed, business confidence improved to a three-month high at the start of the year. S&P Global Market Intelligence is forecasting a rise in industrial production of 6.6% in 2023," he added.