The Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI), which gauges manufacturing performance, posted 54.6 in March, up from 54.2 in February and signaling a solid monthly improvement in the health of the manufacturing sector.

Vietnam’s reading remained the highest among ASEAN countries, Nikkei said in a report released on April 3. 

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, according to the report.

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.

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 per cent of panelists forecasting growth. 

Predictions of higher new orders, as well as business expansion plans, were behind the positive outlook.

“The positive PMI data of Vietnam for March completes the strongest quarter that we have seen since the survey began in early-2011,” said Mr. Andrew Harker from IHS Markit, which compiles the survey.

Particularly pleasing in the latest month was a near-record increase in employment as companies maintained optimism that workloads will continue to expand in the near term at least.

“The manufacturing industry therefore looks set to continue to be a key driver of GDP growth in the first quarter and hopefully throughout 2017, for which IHS Markit forecasts a rise of 6.4 per cent,” Mr. Harker added.

Vietnam’s GDP increased 5.1 per cent year-on-year to VND931.6 trillion ($40.9 billion) in the first quarter of the year, according to the latest figures from the General Statistics Office (GSO).

The services sector recorded the highest growth, of 6.52 per cent, representing 2.65 percentage points of total value. 

The industrial and construction sector, meanwhile, increased 4.17 per cent, contributing 1.46 percentage points, while agriculture, forestry and fisheries rose 2.03 per cent, for 0.24 percentage points.

VN Economic Times