The manufacturing sector of Vietnam edged back into expansion in March, with the PMI posting a 23-month high of 5.08.

The figure was contained in the Hong Kong and Shanghai Banking Corporation (HSBC)’s report on Vietnam’s purchasing managers’ index (PMI) in March, released on April 1.

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

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

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.

Input cost inflation surged higher during March, amid reports of increased prices on international commodity markets.

Part of the increase in input prices was passed on to clients in the form of higher selling prices. Output rate of contraction charges rose for the second successive month and at the fastest pace since April 2012. However, the rate of increase in selling prices remained well below that of input costs.

Vietnam 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.

Asia Economist at HSBC Trinh Nguyen said 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, she said, adding that what's most positive moving forward is a rebound of external demand, which should help counterbalance weak internal demand in the coming months.-