Vietnam’s manufacturing sector improved in May, with the S&P Global Manufacturing PMI rising to 52.8 from 50.5 in April, according to S&P Global’s Purchasing Managers’ Index (PMI). A reading above 50 indicates that the sector is growing.
The improvement was driven by a rise in new orders after a slowdown in April.
According to S&P Global, some customers increased purchases and built up inventories because they were concerned that the war in the Middle East could cause supply shortages, shipping delays and higher prices.
Export orders also returned to growth, although higher transport costs continued to weigh on demand from overseas markets.
As orders increased, factories raised production at the fastest pace since February.
Manufacturers also stepped up purchases of raw materials and components to build their own inventories.
However, the stronger activity came with a downside.
Input costs continued to rise sharply, with fuel, oil and transport costs driving the fastest increase in manufacturing costs since 2011.
Many companies passed some of these higher costs on to customers through higher selling prices.
Despite the increase in orders and production, manufacturers continued to cut jobs for a third straight month.
Companies reported that they still had enough spare capacity to handle incoming work and reduce existing backlogs.
Supply chains also remained under pressure.
Delivery times lengthened again in May due to logistics disruptions and higher shipping costs.
Businesses were more optimistic about the outlook than they were in April, but confidence remained relatively subdued because of uncertainty surrounding the conflict in the Middle East.
While the headline figures point to a stronger manufacturing sector, some of May’s growth appears to have been driven by precautionary stockpiling rather than a lasting improvement in demand.
That raises questions about whether the current momentum can be maintained in the months ahead.