What Investors Should Know About Vietnam’s May 2025 PMI

Vietnam’s manufacturing sector continued to face headwinds in May 2025, with the latest Purchasing Managers’ Index (PMI) from S&P Global registering at 49.8, marking the second consecutive month below the 50-point threshold that separates expansion from contraction.

While the reading showed a slight improvement from April’s 45.6, the sub-50 figure signals ongoing challenges in the manufacturing landscape — and critical signals investors should not ignore.

Export Demand Hit by U.S. Tariffs

According to S&P Global’s analysis, the primary drag on Vietnam’s PMI remains weak export demand, largely influenced by U.S. tariff policies. While some manufacturers observed a more stable trade environment compared to April, new export orders dropped sharply, more so than total new orders — a clear indicator of external vulnerability.

This continued decline underscores Vietnam’s exposure to global trade tensions. For investors, this raises caution regarding companies heavily reliant on foreign markets, particularly those tied to the U.S. or other tariff-sensitive regions.

Output Rebounds — But With Caveats

Despite falling new orders, production levels increased modestly in May, ending a brief decline seen the previous month. This rebound was attributed to more stable tariff policies and proactive measures by firms to boost output. However, this recovery in output is occurring alongside reduced staffing and lower backlogs, suggesting the uptick may not be sustainable without a corresponding rebound in demand.

Investor takeaway: Watch for signs of real demand growth — output growth without order recovery may be short-lived.

Improving Business Confidence — But Still Below Average

May saw a slight improvement in business sentiment, largely thanks to a more predictable tariff landscape. However, confidence levels remain below the long-term average, as manufacturers remain cautious about future policy shifts and global demand.

Investors should view this as a sentiment floor, not yet a turning point. A durable recovery in confidence — and thus investment-worthy momentum — will require clearer macro signals, particularly from the U.S. policy front.

Input Costs Decline for the First Time Since July 2023

A standout detail in the May PMI is the first reduction in input costs in nearly two years, driven by suppliers lowering prices to stimulate weak demand. This deflationary pressure on raw materials has helped manufacturers reduce selling prices for a fifth straight month, potentially supporting margins in the short term.

This trend may favor cost-sensitive exporters and consumer goods producers, offering investors selective opportunities in those sectors. However, falling prices can also indicate persistent demand weakness, limiting top-line growth.

Inventory Adjustments and Supply Chain Challenges

Despite a small increase in purchasing activity, manufacturers continued to trim input and finished goods inventories, reflecting a conservative stance amid subdued demand. Simultaneously, supplier delivery times lengthened slightly, attributed to logistics delays, not necessarily stronger demand.

This dynamic suggests that supply chains remain fragile, and any uptick in global activity could cause disruptions — an important risk for investors monitoring sectors like electronics, garments, or components.

Bottom Line for Investors

Vietnam’s May 2025 PMI presents a mixed picture: modest output growth and easing cost pressures provide short-term relief, but the sustained drop in new export orders and cautious business sentiment emphasize lingering uncertainty.

As U.S. trade policies continue to influence Vietnam’s manufacturing outlook, investors should:

• Closely monitor tariff developments, especially toward mid-year when further policy changes could be announced.
• Prioritize companies with diversified export markets or strong domestic demand.
• Watch for firms capitalizing on input cost reductions to preserve margins.
• Treat PMI stabilization as a signal of resilience, but not yet a sign of robust recovery.

In a volatile global environment, vigilance, selectivity, and policy foresight will be key to navigating Vietnam’s manufacturing investment landscape in the months ahead.

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Source: Vietnam Insider