Although the growth rate was only moderate, it was nonetheless the second-highest in the two-year series history, HSBC says in its Manufacturing PMI report.

March data pointed to modest recoveries in the levels of both manufacturing production and new orders, following contractions in the prior month.

Companies benefited from an improving domestic market, increased promotional activity and a slight expansion in the level of incoming new export orders.

New export business increased for the first time in 11 months during March. Manufacturers linked the latest growth in new export sales to improved demand from clients in China, Japan and Thailand.

Growth of new orders and production filtered through to the labour market, with March seeing employment rise for the fifth time in the past six months.

However, the bank says evidence of spare capacity remained present during the latest survey period, as highlighted by a further decline in backlogs of work. Outstanding business fell for the twelfth straight month, albeit to the least marked extent during the current sequence of decline.

Input cost inflation surged higher during March, amid reports of increased prices on international commodity markets. Vietnamese manufacturers reported the steepest increase in their purchasing costs since last September, with the rate of inflation rising back above the survey average.

Part of the increase in input prices was passed on to clients in the form of higher selling prices. Output charges rose for the second successive month and at the fastest pace since April 2012.

Yet, the rate of increase in selling prices remained well below that of input costs, and several companies attributed this to ongoing subdued market conditions and strong competition.

Vietnamese manufacturers maintained a preference for reduced inventory holdings in March, leading to further depletion of both raw material and finished goods stocks. In contrast, purchasing activity was raised for the second time in the past three months, reflecting increased production.

Trinh Nguyen, an Asia Economists at HSBC, says March's expansion of manufacturing output is consistent with the bank’s view of a gradual recovery in Vietnam.

“The process is likely to be bumpy, however. What's most positive moving forward is a rebound of external demand, which should help counterbalance weak internal demand in the coming months,” the economist says.

The HSBC Vietnam Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 400 manufacturing companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on industry contribution to Vietnamese GDP.

The PMI™ is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers’ Delivery Times - 0.15, Stock of Items Purchased - 0.1. 

VOV