Renewed rise in new orders as exports near stabilisation

Renewed rise in new orders as exports near stabilisation

Business conditions in the Vietnamese manufacturing sector improved slightly in September amid a boost in renewed new orders.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) was unchanged at 50.4 points in September, signaling a further slight strengthening in the sector. Operating conditions have now improved for three consecutive months.

Helping to support overall business conditions in September was a renewed increase in new orders following a slight fall in August. That said, the rate of expansion was only marginal.

Meanwhile, new export orders continued to fall, but the pace of contraction eased to the weakest in the current 11-month sequence of decline. International demand remained muted, but stability in US tariff policies helped some firms to secure new business from abroad.

With overall new orders rising on the back of improving customer demand, manufacturers continued to increase their production volumes at the end of the third quarter, thereby extending the current sequence of growth to five months. The rate of expansion was solid, but eased to the weakest since June.

The latest rise in output was partly reflective of reductions in backlogs of work, which decreased significantly in September and to the largest degree in five months.

Meanwhile, manufacturers continued to scale back workforce numbers, extending the current sequence of monthly falls to one year. Panellists link the modest reduction in staffing levels to relatively muted workloads and the non-replacement of retiring workers.

On a more positive note, firms increased their purchasing activity for the third month running amid higher output requirements. The use of purchased items to support production meant that stocks of inputs continued to fall, however. Stocks of finished goods were also down, and to the largest extent since July 2024.

Suppliers' delivery times lengthened for the thirteenth month running in September, albeit only modestly and to the smallest degree in four months. Panellists reported goods shortages and issues with transportation.

Inflationary pressures strengthen at the end of the third quarter of the year, with both input costs and output prices rising at sharper rates. The latest increase in input costs was the fastest since July 2024 and linked by respondents to higher market prices and unfavorable exchange rate movements. In turn, selling prices also rose at the fastest pace in 14 months.

A more stable economic environment is expected to help lead to higher new orders and subsequently an increase in output over the coming year. Public sector investment is also predicted to support growth. While sentiment firms remain optimistic about the year-ahead outlook, the level of sentiment dropped from August and was weaker than the series average.

Andrew Harker, economics director at S&P Global Market Intelligence, said, "There was good news on the demand front for Vietnamese manufacturers in September as new orders returned to growth and even exports, which have been falling continuously since late last year, showing signs of stabilization. The more certain picture regarding tariffs appears to have helped the demand environment for Vietnamese firms."

"Greater stability is also expected to help support growth over the coming year, but confidence among firms remains relatively subdued at present given the recent muted demand picture. Something to watch out for in the months ahead is the picture around inflation. Rates of increase in firms' input costs and selling prices have been steadily strengthening in recent months. If this trend continues, we may start to see price pressures restricting demand," Harker added.

VIR