Vietnam's manufacturing sector surges in June with sharp PMI rise

The Vietnamese manufacturing sector experienced a significant acceleration in growth at the end of the second quarter, as per S&P Global Ratings. The country’s manufacturing purchasing managers' index (PMI) surged to 54.7 in June 2024 from 50.3 in May 2024. This sharp increase marks the third consecutive month of improvement in the sector's health and indicates a substantial strengthening of business conditions. Notably, the enhancement in operating conditions was the joint-strongest since November 2018, matching the improvements observed in April 2021 and May 2022.

The much greater strengthening of business conditions reflected substantial increases in both output and new orders at the mid-point of the year.

In particular, new orders rose to an extent only exceeded during the opening month of data collection for the survey in March 2011. An improvement in demand was reported, with some customers coming back to request additional orders during the month. In some cases, competitive pricing had helped firms to secure new business. New export orders meanwhile increased at the fastest pace since February 2022, albeit at a pace that was still much softer than seen for total new business, as per S&P Global.

The acceleration in growth of new orders was matched by manufacturing production, with June seeing the steepest increase in output for just over five-and-a-half years.

The strength of the rise in new orders put pressure on operating capacity, with backlogs of work increasing for the second time in three months. Although slight, the pace of accumulation was the sharpest since January.

In some cases, firms indicated that staff shortages had led to the build-up of outstanding business. As a result, workforce numbers were raised for the first time in three months, and at a solid pace. In some cases, new hires were only on a temporary basis, however.

Firms also expanded their purchasing activity, with input buying increasing for the third month running and at the fastest pace since June 2022. Despite this, stocks of purchases continued to fall amid the use of inputs to support production. Similarly, stocks of finished goods decreased as inventories were shipped to help meet sales needs. Moreover, the drop in post-production stocks was the largest in three years.

The rate of input cost inflation accelerated for the third month running in June and hit a two-year high. There were widespread reports of higher transportation costs, alongside increases in oil prices and the cost of imported items. In turn, manufacturers also raised their own selling prices to the largest degree since June 2022. Charge inflation has now been recorded in two successive months.

Better raw material availability helped suppliers to speed up deliveries in June and lead times shortened for the first time in 2024 so far. The improvement in vendor performance was only slight, however, amid international shipping issues.

The prospect of favourable business conditions continuing supported confidence in the year-ahead outlook for manufacturing output. Sentiment hit a three-month high as around half of respondents predicted an expansion.

Fibre2Fashion News Desk (DP)