PMI reached 54.6 in March, the highest level in 22 months

03.04.2017

The Vietnamese manufacturing sector ended the first quarter of the year on a positive note, with sharper growth of manufacturing output recorded in March amid another strong increase in new orders. Rising workloads led to a marked expansion of purchasing activity and the fastest gain in employment since September last year. Meanwhile, the rate of input cost inflation quickened to the sharpest in almost six years amid higher raw material prices.

The headline Nikkei Vietnam Manufacturing Purchasing Managers’ IndexTM (PMI)TM – a composite single-figure indicator of manufacturing performance – posted 54.6 in March, up from 54.2 in February and signalling a solid monthly improvement in the health of the sector. Overall, the strengthening of business conditions was the most marked since May 2015.

Improving client demand led to another sharp rise in new orders during March, with the rate of expansion little-changed from February’s 21-month high. Meanwhile, the rate of growth in new export orders accelerated and was the fastest in 2017 so far.

With new orders increasing, firms raised production for the fifth month in a row. Moreover, the rate of expansion in manufacturing output was the sharpest since May 2015.

Backlogs of work increased for the third month running on the back of strong new order growth. However, the faster rise in production restricted the extent to which outstanding business accumulated. Higher output also contributed to a build-up of stocks of finished goods.

Firms took on extra staff to help boost production in March. Staffing levels rose markedly, and at the strongest pace since September last year.

Nikkei Vietnam Manufacturing PMI

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Sources: Nikkei, IHS Markit

Manufacturers also reacted to higher new orders by increasing their purchasing activity, with input buying up sharply over the month. This resulted in a further rise in stocks of purchases, with some firms mentioning efforts to build reserves in order to support growth of production in the coming months.

The rate of input cost inflation quickened to the fastest since May 2011. According to respondents, rising prices for raw materials was the key factor behind increases in input costs, while higher oil prices and currency weakness were also mentioned as reasons.

The passing on of higher input costs to clients led to a further rise in output prices, the seventh in as many months. That said, the rate of inflation eased slightly from that seen in February.

Supply shortages and transportation issues led to a second consecutive monthly lengthening of suppliers’ delivery times. Although modest, the latest deterioration in vendor performance was the most marked since January 2016.

Manufacturers remained strongly confident that output will increase over the coming 12 months, with close to 63% of panellists forecasting growth. Predictions of higher new orders, as well as business expansion plans, were behind the positive outlook.

Source: Nikkei, IHS Markit

Photo: CBR Investment AG