According to a report released on June 1, the health of Vietnam's manufacturing sector continued to improve in May 2026, marking the 11th consecutive month of positive business conditions.

One of the key drivers behind the sector's expansion was the recovery in new orders. After a slight decline in April, new business returned to growth in May, posting a solid increase and the fastest pace in three months. S&P Global noted that the improvement reflected customers' efforts to build safety stocks amid concerns about the impact of a prolonged conflict in the Middle East.

New export orders also returned to growth, ending a two-month period of decline. However, the pace of expansion remained modest as elevated freight costs and logistical challenges continued to constrain demand from international markets.

The rebound in new orders helped support production growth during May. Manufacturing output expanded for the 13th consecutive month and recorded its strongest increase since February.

Purchasing activity also rose for the first time in three months, reflecting manufacturers' efforts to accumulate raw materials ahead of potential supply chain disruptions.

Despite the positive momentum, cost pressures remained a major challenge for manufacturers. Input costs increased at a faster rate in May, extending the current sequence of inflation to four months and reaching the strongest pace since April 2011. Survey respondents cited higher fuel, oil and transportation costs as the primary factors driving input price inflation.

Output prices also continued to rise and remained among the sharpest increases recorded over the past 15 years, although the pace of inflation eased slightly compared with April.

Higher fuel and transportation costs, together with ongoing logistical difficulties, continued to lengthen suppliers' delivery times in May. Nevertheless, the deterioration in vendor performance was less severe than in the previous survey period.

Longer delivery times contributed to a further decline in inventories of purchased inputs, despite increased procurement activity. Notably, stocks of inputs used in production fell at the sharpest rate in nearly a year. Meanwhile, finished goods inventories also declined, although at a slower pace than in April.

Although new orders recovered, previously weak demand meant that firms still had sufficient capacity to process incoming business and clear backlogs. As a result, outstanding business decreased for the second consecutive month. Spare capacity also contributed to a third successive reduction in manufacturing employment, though the pace of job cuts remained modest.

Andrew Harker, Economics Director at S&P Global Market Intelligence, said the May PMI data provided several encouraging signals, with new orders returning to growth and leading to a notable increase in output. The headline PMI reached its highest level since just before the outbreak of conflict in the Middle East.

Harker cautioned that part of the recent growth appeared to be driven by stock-building efforts aimed at mitigating the risk of war-related disruptions. This raises questions about the sustainability of the current expansion in the months ahead.

"Companies continued to face rising price pressures, with the rate of input cost inflation accelerating further after reaching a 15-year high in April. How events unfold elsewhere in the world will remain a key determinant of manufacturing sector performance in the coming months," Harker said.

The May PMI report also noted that business expectations for output over the next 12 months improved to their highest level in three months. Firms expressed confidence that new orders would continue to increase and indicated plans to expand their operations.