Vietnam’s Jan manufacturing sector shows signs of modest improvement

The headline Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) remained above the 50.0 neutral mark in January, posting 50.6 following a reading of 50.8 in December, signaling a further modest improvement in the health of the manufacturing sector at the start of 2020, according to Nikkei and IHS Markit. 

A reading below the 50 neutral mark indicates no change from the previous month, while a reading below 50 indicates contractions and above 50 points to an expansion.

Supporting the overall improvement in business conditions was a further moderate rise in new orders. Respondents indicated that stronger customer demand had been behind the increase in new work, which was the fiftieth in as many months. Meanwhile, new export orders returned to growth following a slight reduction in December.

Although new orders continued to rise, manufacturing production ticked down in January. Output has now fallen in four of the past five months, but the pace of reduction remained marginal.

The combination of rising new orders and a scaling back of production led a number of firms to use stocks of finished goods to help meet new business requirements. As a result, post-production inventories decreased, and at the fastest pace in three months.

Despite this, firms still reported an increase in backlogs of work. The accumulation was the fifth in as many months, albeit only marginal.

Staffing levels rose at a fractional pace in January, with the rate of job creation the weakest in the current three-month sequence of rising employment.

Manufacturers expanded their purchasing activity at a slightly faster pace in January. Despite the rise in input buying, stocks of purchases were broadly unchanged as some respondents restricted stock holdings in line with lower output requirements.

Confidence in the 12-month outlook for production improved at the start of the year and was the highest for three months. Positive sentiment mainly reflected predictions of rising new orders and the launch of new products.

“There was further positive news in terms of manufacturing new orders in the latest Vietnam PMI, with the expansion taking the current sequence of growth to 50 months. Despite this, firms appear to be taking a step back from raising production at present, preferring to utilize inventories to help meet customer orders. This will likely change soon, however, should the upward trajectory of new business continue,” said Andrew Harker, associate director at IHS Markit, which compiles the survey.

"The Vietnamese manufacturing sector looks set to be a star performer again in 2020, helping to support impressive growth in the wider economy. IHS Markit forecasts industrial production to rise 7.9% during 2020.”