Stable tariff policies support renewed rise in production

Stable tariff policies support renewed rise in production

Greater stability around tariff policies has helped support the renewed rise in production output and improved business confidence.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) posted below the 50 point no-change mark for the second consecutive month in May, but rose to 49.8 points from 45.6 in April to signal a near-stabilisation of business conditions in the sector.

As was the case in April, new orders decreased during May due to tariffs and subdued market demand. The impact on demand was most keenly felt in export markets, with new business from abroad declining at a much faster pace than total new orders. The fall in new export orders was broadly similar to that seen in April, while the reduction in total new business was softer than in the previous month. While new orders continued to fall, output returned to growth in May following a decline in April.

In a similar vein to the trend in production, business confidence improved in May amid more stable tariff policies. That said, a number of respondents remained concerned about the potential impact of tariffs, meaning that business sentiment remained well below the series average.

Andrew Harker, economics director at S&P Global Market Intelligence, said, "The news around tariffs continues to play a key part in determining trends in the Vietnamese manufacturing sector. May saw a more stable picture in terms of US tariff policies than April, helping lead to a renewed expansion in output and improved business confidence. That said, manufacturers remained wary of the impact of tariffs and again saw a marked reduction in new export orders, which contributed to a continued decline in new business overall."

In May, reduced workloads and staff resignations contributed to a further fall in employment in Vietnam's manufacturing sector. Meanwhile, backlogs of work continued to fall amid lower new orders, but the rate of depletion eased to the weakest in the current five-month sequence of decline.

Efforts to expand output meant that manufacturers increased their purchasing activity slightly in May. The increase in input buying ended a two-month sequence of contraction. Despite the rise in purchasing, stocks of inputs were scaled back again, albeit to the least marked extent since August 2024. Stocks of finished goods were also down, as firms reported a reluctance to hold inventories and the prompt shipment of products to clients.

"Another noteworthy aspect of the latest PMI survey was a first fall in input costs for almost two years as suppliers offered discounts in a subdued demand environment. As we approach the mid-point of the year, eyes will remain on US tariff policy to see how the Vietnamese manufacturing sector will be affected," Harker said.

VIR