Shrinking demand mutes manufacturing growth

Shrinking demand mutes manufacturing growth

Vietnam's manufacturing activity continued to slow down in February, with weak demand leading to further reductions in new orders and production, according to a report released by S&P Global.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) was below the 50 point no-change mark for the third consecutive month in February, despite rising slightly to 49.2 points from 48.9 points in January. The latest reading was reflective of a slight deterioration in business conditions over the course of the month.

After having fallen for the first time in four months during January, new orders decreased again in February. The rate of contraction was modest but quickened to the fastest since last September. Panellists reported demand weakness both domestically and internationally. Muted export demand was highlighted by a further solid decline in new business from abroad, the fourth reduction in as many months.

In line with the picture for new orders, manufacturing production also decreased for the second successive month in February.

Shortages of new work also led some firms to hold off on replacing departing staff, thereby resulting in a fifth consecutive fall in employment. The rate of job cuts eased from January, however.

Despite the reduction in workforce numbers, there remained evidence of spare capacity in the sector amid falling new orders. Outstanding business decreased markedly, and to the largest extent in 16 months.

Bucking the wider trends across the sector during February, purchasing activity increased slightly.

In some cases, rising input buying reflected confidence in the upcoming path of manufacturing output. In fact, business confidence strengthened for the second month in a row to the highest since June last year. Firms hope for stable economic conditions to support an improvement in new orders and thus production growth.

Another factor behind the rise in purchasing activity seen in February was a desire to make sure materials were secured amid uncertainty around availability and supply chain delays.

Andrew Harker, economics director at S&P Global Market Intelligence, said, "Manufacturers in Vietnam reported subdued demand conditions again in February, with the sector struggling to gain momentum in 2025 so far. On a more positive note, firms were increasingly optimistic about the future path of output, although confidence was often based on hopes that economic conditions will be stable in the months ahead."

"Issues with transportation were a key headwind for the sector in February, with respondents citing problems with the speed and availability of freight, as well as higher costs. Firms will be hoping to see an alleviation of these supply-side constraints, alongside demand improvements, as the year progresses," he added.

VIR