The Highest PMI in 5 Years: What’s the Outlook for Vietnam’s Manufacturing Sector?

According to Minister and Chairman of the Government Office Tran Van Son, under the chairmanship of Prime Minister Pham Minh Chinh, the government held its July regular meeting to assess the socio-economic situation in July and the first seven months of the year, as well as capital allocation and disbursement, the implementation of three National Target Programs, and other important matters. The meeting also aimed to propose key tasks and breakthrough solutions for the coming period.

The government members unanimously agreed that the socio-economic situation in July and the first seven months showed positive trends, with July’s results higher than June’s and the cumulative results from January to July surpassing the same period in 2023 in most fields.

Notably, Vietnam’s industrial recovery in the first seven months of 2024 demonstrated several remarkable bright spots, with key indicators showing strong growth. Specifically, the PMI for the manufacturing sector in July 2024 reached 54.7 points, increasing for the fourth consecutive month and reaching its highest level since November 2018.

In addition, the growth rate of industrial production in July was higher than in June and was the highest since March 2011. The Index of Industrial Production (IIP) for the first seven months increased by 8.5% year-on-year, the highest cumulative level since February 2024. Notably, the manufacturing industry recorded a 9.5% growth rate.

When examining individual localities, industrial production grew in 60 out of 63 provinces and cities in July, with only three localities experiencing a decline. Some localities with high growth rates included Khanh Hoa, Bac Giang, Hai Phong, and Quang Ninh.

The high consumption index in the processing industry helped reduce inventory levels compared to the previous year. Some key industrial products witnessed significant increases compared to the same period last year, including steel bars and angles, fabrics made from natural fibers, rolled steel, NPK compound fertilizers, and electricity production.

Commenting on these results, Deputy Minister of Industry and Trade Phan Thi Thang stated that the growth of the processing industry reflected a very positive picture of domestic production. It indicated that industrial production was recovering strongly compared to 2023 and was on a positive growth trajectory.

“The processing industry has returned to its role as the driving force behind the economy’s growth,” said the Deputy Minister of Industry and Trade.

According to the Deputy Minister, there were five main reasons for the positive results in the domestic manufacturing sector. First, the effectiveness of the government’s support measures and the strong direction of the Prime Minister in disbursing investment capital and implementing key industrial projects played a crucial role.

Second, the favorable FDI attraction and disbursement contributed additional capacity to domestic production. Third, the government, ministries, sectors, and localities accompanied associations and enterprises in taking advantage of opportunities arising from FTAs that Vietnam has signed, especially in the context of the global market recovery and positive growth in export orders in key export sectors such as textiles, footwear, electronics, and food processing.

Fourth, outstanding achievements in economic diplomacy, especially with Vietnam’s major trading partners such as the US and China, helped reinforce investors’ and businesses’ confidence. Fifth, enterprises’ capabilities, particularly domestic enterprises, were improved due to the comprehensive impact of the government’s support policies (as evidenced by the new positive signal of domestic enterprises’ export growth nearly doubling that of FDI enterprises) and the stable macroeconomic environment in Vietnam, along with the global market’s recovery trend.

Challenges Remain

Despite the bright spots in the industrial sector, the economy in general and industrial production, in particular, still face several challenges in the coming period.

Deputy Minister Phan Thi Thang pointed out that although there have been improvements, the internal strength of domestic industries remains weak. Long-standing bottlenecks in industry have not been effectively addressed.

The production sector still relies heavily on external factors, especially FDI enterprises. The value addition of domestic industries is low, and the supporting industry is underdeveloped. There are not many domestically produced industrial products with high technology content.

Moreover, industrial recovery has not been comprehensive. In the first seven months of 2024, three out of 63 localities saw a decrease in IIP. Some key manufacturing industries declined compared to the same period, such as smartphones, televisions, automobiles, crude iron and steel, and draft beer. Although there was a positive recovery, some key export commodities (footwear, wood, phones, and accessories) have not returned to their peak levels of 2022.

Additionally, the last months of the year and the following years are expected to bring changes and challenges for domestic industries due to volatile domestic and international contexts. Geopolitical tensions and great power competition are increasing, and the recovery of major trading partners is still slow, posing risks of disruptions in global supply and production chains.

Export and import activities remain dependent on certain markets, products, and the FDI sector. Some key export commodities to major markets (EU and the US) continue to face pressures from trade remedy investigations and technical barriers.

Domestically, the real estate market is recovering slowly. The domestic market is growing slower than in the same period last year. Domestic prices are facing upward pressure after implementing new policies.

Ministry of Industry and Trade Proposes Four Groups of Solutions

In response to these challenges, the Ministry of Industry and Trade has proposed four groups of solutions to continue promoting industrial production in the coming time.

First, continue to proactively implement effectively the government-approved enterprise support policies to remove difficulties and obstacles in production and business activities, especially in key export sectors such as textiles, footwear, and fundamental industries such as automobiles, machinery, and steel. Facilitate the operation of new industrial production projects to serve export and domestic consumption, thereby enhancing production capacity and expanding the export commodity base.

Second, focus on advising and completing the institution, policies, laws, and strategies for developing some fundamental industries, prioritizing them as new growth drivers for the short and long term.

Third, continue to promote the effective implementation of working programs with localities and existing enterprise support programs to restore and promote industrial growth in key economic regions and localities.

Fourth, support enterprises in taking advantage of opportunities arising from large public investment projects and the government’s real estate market recovery policies. Encourage the prioritization of domestically produced goods and services and minimize the use of imported products and raw materials that can be sourced domestically. Promote the search for new markets for key export industries such as textiles, footwear, and electronics.