The S&P Global Vietnam Manufacturing Purchasing Managers' Index™ (PMI®) returned above 50.0 in the first month of the year, increasing to 50.3 compared to 48.9 in December. This result shows that the health of the manufacturing industry has improved after 5 months, although this is only a small improvement.

The report states that business conditions in general improved due to an increase in the number of new orders and output. Accordingly, the recovery in demand in both domestic and export markets are factors that have helped the total number of new orders as well as the number of new export orders increase for the first time in the last 3 months.

Thanks to that, companies ended a four-month period of reduced output. The increase was only small but the most significant since September 2022 and concentrated in intermediate goods manufacturers.

Besides, according to S&P Global, with a slight increase in both output and the number of new orders, companies maintained the number of employees and purchasing activity unchanged in the first month of 2024. The near-unchanged operating capacity amid increasing new orders caused the backlog of work to increase for the second consecutive month in January.

Not only that, post-production inventory recorded a decrease in January 2024. Stocks of purchases also decreased as production demand increased, but purchasing activity was almost unchanged. The reduction in pre-production inventories was solid and the steepest since June last year. 

S&P Global assesses that shipping delays and transportation issues extended suppliers' delivery times in January, and this was the first deterioration in seller performance in over a year. However, the extent of the delay in delivery time is small.

The transportation issues causing delivery delays also caused shipping costs to increase at the beginning of the year, thereby continuing to significantly increase input prices. Companies also reported rising fuel and sugar costs.

Although input costs continued to increase, Vietnamese manufacturers still lowered their selling prices with the hope of stimulating demand, ending the period of price increases that has lasted for the past 5 months.

Confidence in the production outlook for the next year has fallen to a seven-month low as companies worry about economic conditions. However, S&P Global says that manufacturers are generally optimistic, with hopes that demand and the number of customers will improve, and plans to launch new products.

Assessing Vietnam's manufacturing industry in the first month of 2024, Mr. Andrew Harker, Economic Director at S&P Global Market Intelligence, said:

“It was an encouraging start to 2024 for the Vietnamese manufacturing sector, with some welcome improvements in new orders and production. The respective increases were only marginal, however, and not sufficient to entice firms to take on additional staff or expand purchasing. The lack of an expansion to operating capacity meant that backlogs of work continued to build."

The expert said that there were some reports of transportation and delivery issues in January, leading to slow delivery times and increased costs. However, companies reduced their selling prices, reflecting relatively weak demand.