The Vietnam Manufacturing Purchasing Managers' Index (PMI) rose to 53.6 in March, up from 51.6 in February, signaling a solid improvement in the health of the manufacturing sector. In fact, business conditions strengthened to the greatest extent in 27 months, 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.

Signs of improving customer demand and success in keeping the Covid-19 pandemic under control helped to support rises in new orders and output in March.

New business increased for the seventh successive month, and at the fastest pace since July 2019. In some cases, clients had expanded their order sizes over the month. There were also signs of improvement in international demand conditions, helping lead to the greatest increase in new business from abroad since November 2018.

Production, meanwhile, rose at a much faster pace than in February, with the rate of growth hitting a 20-month high. Output was up across all three broad sectors, with consumer goods firms leading the expansion.

Production at Ha Yen company. Photo: Khac Kien

Higher new orders and expanded production requirements encouraged Vietnamese manufacturers to increase their staffing levels and purchasing activity during March.

Employment rose at a modest pace, but one that was nonetheless the strongest since June 2019. Similarly, input buying increased to the greatest extent in 20 months.

Difficulties sourcing raw materials remained, with suppliers' delivery times continuing to lengthen. Issues with the importing of items, material shortages and a lack of shipping containers all contributed to longer lead times. That said, vendor performance declined to the least extent in four months and firms were able to expand their stocks of purchases.

Stocks of finished goods also rose, due to a combination of higher production and issues with the delivery of orders.

Shortages of raw materials, often due to the COVID-19 pandemic, led to a sharp and accelerated increase in input costs during March. In particular, higher steel prices and increased costs for items sourced from China were mentioned. The latest rise was the fastest in just over three years.

Output prices, meanwhile, were raised at the sharpest pace in just over four years as manufacturers passed on higher input costs to their customers.

Hopes that the Covid-19 pandemic will come to an end and demand will improve supported confidence in the 12-month outlook for production. Furthermore, sentiment was the highest since July 2019, with close to half of all respondents optimistic regarding the prospects for output.

"Particularly encouraging in the latest set of figures was the strength in export orders as international demand shows signs of improvement,” said Andrew Harker, associate director at IHS Markit, which compiles the survey.

“Hopes that these trends will continue and that the Covid-19 pandemic will come to an end supported the greatest business confidence since mid-2019. The sector therefore looks well set to make further progress in the second quarter."