ECONOMICS COMMENTARY — Oct 01, 2024
Typhoon Yagi causes steep drop in Vietnamese manufacturing production in September
Typhoon Yagi, the most powerful storm to hit Asia this year, made landfall in northern Vietnam on September 7th, killing hundreds of people and causing widespread damage and flooding. S&P Global PMI® data for September showed that the storm caused a steep drop in manufacturing production during the month, with the impact most pronounced in the north of the country. The longer-term outlook for the sector remains positive, however, given recent buoyant demand conditions, and manufacturing confidence actually ticked higher during the month.
Steep fall in manufacturing production
Manufacturing production across Vietnam decreased sharply in September as the heavy rainfall and subsequent flooding caused by the typhoon led to temporary business closures and delays to production lines. The fall in the latest survey period was even more stark given that the sector had been going through a period of strong growth in the previous few months.
Delving into a regional breakdown of the latest PMI data showed that the northern part of Vietnam where Typhoon Yagi hit was the worst impacted in terms of production. In particular, the Red River Delta (which includes Hanoi) registered a steep contraction in output, ending a five-month sequence of expansion. By way of contrast, the area around Ho Chi Minh City in the south continued to see manufacturing production increase, albeit at a softer pace.
Widespread storm impacts
The impact of the typhoon was not only evident in terms of production as a number of the other variables covered by the PMI survey showed the widespread disruption caused to the manufacturing sector. New orders were also down sharply, ending a five-month sequence of growth, while some firms reported difficulties exporting products due to the storm.
The securing of materials was also severely hampered as flooding disrupted transportation and resulted in the most marked lengthening of suppliers' delivery times since mid-2022 when global supply chains were still in flux as a result of the COVID-19 pandemic. In contrast to the picture for production, the disruption to supply chains was seen nationwide.
Transportation difficulties and factory closures meant that the impact on stocks of inputs in the sector was substantial. In fact, inventories of purchased items decreased at the second-fastest pace since the survey began in 2011, only just behind the record posted in April 2020 when operations were heavily impacted by worldwide COVID-19 pandemic restrictions.
The widespread disruption to operations in the sector meant that firms were often unable to complete orders during September and backlogs of work accumulated to the largest degree in two-and-a-half years.
Rebound in output expected
Despite the severity of the disruption caused by the storm, the buoyant nature of demand in the sector in recent months suggests that production should recover quickly once factories are back up and running. In fact, business confidence around the outlook for output actually ticked higher during September and firms increased their staffing levels slightly. S&P Global Market Intelligence analysis suggests, however, that uncertainty around how quickly infrastructure can be repaired means that a full recovery may not take place until the first quarter of 2025 (subscription required).
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Andrew Harker, Economics Director, S&P Global Market Intelligence
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Purchasing Managers' Index™ (PMI®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
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