The Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) in the first month of this year rose to the highest level since April 2017, indicating solid conditions in the manufacturing sector.
The seasonally adjusted business activity index stood at 53.4 in January, up from 52.5 in December.
A reading above 50 indicates economic expansion, while a reading below 50 points indicates contraction.
Vietnam’s PMI has stayed above 50 for more than two years now.
According to IHS Markit, which compiles the survey, the Vietnamese manufacturing sector made a strong start to 2018, registering sharp increases in output, new orders and employment.
“The latest strengthening of business conditions was the 26th in successive survey periods and the most marked in nine months,” IHS Markit reported.
New orders continued to rise at the start of the year amidst improving client demand. Moreover, the rate of expansion accelerated to a four-month high. Positive demand conditions were also highlighted in export markets, supporting a further solid increase in new businesses from abroad. New growing business supported a second successive monthly expansion of manufacturing output. The rise was solid and the fastest since last September.
According to the report, firms made further efforts to expand their operating capacity in January, taking on extra staff at a sharp pace. In fact, the rate of job creation was at a 16-month high. Extra capacity enabled manufacturers to reduce backlogs of work despite rising new orders.
Production growth was also supported by a marked increase in purchasing activity, which was the fastest in 13 months.
“After helping to drive growth of the overall economy in 2017, the first month of 2018 provided further welcome news for the Vietnamese manufacturing sector. Faster rises in output, new orders and employment were recorded amidst improving demand conditions,” said Andrew Harker, Associate Director at IHS Markit.
Manufacturers in Viet Nam generally expect client demand to increase further over the course of 2018, thereby supporting optimism towards output growth. Sentiment was broadly in line with that seen in December. Increases in international investment and business expansion plans were also factors likely to cause the output to grow.
“With the TPP trade agreement also back on the agenda, there will be plenty of optimism that the sector will continue to grow as the year progresses,” said Andrew Harker, Associate Director at IHS Markit.
However, Harker noted that: “On a more cautionary note, inflationary pressures have intensified, with input costs up at one of the sharpest rates in the survey’s history. This adds to evidence that strong growth globally is putting pressure on manufacturing supply chains and pushing up costs for raw materials.”
Photo: CBR Investment AG