APRIL 2 0 2 4 VIETNAM MACRO MONITORING Photo credit: Thanh Dat/Nhan Dan Newspaper WHAT’S NEW? • The Index of Industrial production (IIP) expanded moderately, registering 0.47 percent (m/m, SA) in April 2024 compared to 0.02 percent (m/m, SA) in March. It improved by 6.3 percent (y/y) compared with a year earlier, but mostly due to base effects related to a contraction in April of 2023. • Retail sales growth remained weak, registering negligible growth of 0.06 percent (m/m, SA) in April, down from 0.94 percent (m/m, SA) in March 2024. Compared with the same period in 2023, retail sales grew by only 2.07 percent (y/y) in April 2024, down from 3.93 percent (y/y) in March and well below pre-covid average (11.5 percent, y/y, during 2017-19), suggesting weak consumer demand for both goods and services. • Merchandise trade remained volatile. High frequency, seasonally adjusted trade data in April 2024 shows the contraction in both exports and imports. Exports contracted for the third consecutive month in April by 1.6 percent (m/m, SA), with exports to the European Union, Korea and Japan falling. Imports also decreased by 0.6 percent (m/m, SA) in the same month from an expansion of 3.74 percent (m/m, SA) a month earlier. • FDI remained solid in the first four months of 2024. Cumulative FDI commitment and disbursement were US$9.3 billion and US$ 6.3 billion as of end of April 2024, 20.8 percent, and 8.6 percent higher than the same period in 2023, respectively. Manufacturing and real estate remained two major sectors of interest. • Headline inflation accelerated while core inflation remained stable. consumer price index (CPI) inflation rose to 4.4 percent (y/y) in April from 4.0 percent (y/y) in March. Food and housing continue to remain key contributors to CPI inflation since September 2022, with prices in some housing market segments (such as apartments) rising in main cities. Core inflation remained stable at 2.8 percent (y/y) in April 2024, comparable to the average level of the past three months. • Credit growth remained slow indicating continued weak private investment. Credit to the economy increased by 1 percent (m/m), registering a growth of 11.2 percent (y/y) as end of March 2024, well below SBV’s indicative credit growth ceiling of 15 percent for the year. • While the Balance of Payments (BOP) was in surplus as of the end of 2023, the exchange rate has been under pressure due to the sharp strengthening of the US dollar. The US dollar index strengthened from 102.4 at the end of December 2023 to 105.1 at the end of April 2024, putting pressure on many exchange rates in East Asia and around the world. SBV’s VND/USD central rate depreciated by 2 percent (y/y), while market rate depreciated by 8 percent. TO WATCH Continued mixed performance in external and domestic demand raises concerns about the pace of recovery of the economy. Authorities could take actions to support the economy, including through disbursement of the investment budget, and by undertaking structural reforms that help boost private sector productivity. Prospects of interest reduction by the U.S. remain uncertain and given the existing interest rate differential between Viet Nam and international financial markets, monetary policy options remain limited. PAGE 1 A P R I L 2 0 2 4 • V I ET N AM MAC RO MO N ITO RI NG RECENT ECONOMIC DEVELOPMENTS Industrial production expanded moderately. Figure 2: Retail Sales The Index of Industrial production (IIP) expanded moderately, Percent (m/m, SA – LHS; and y/y - RHS) registering 0.47 percent (m/m, SA) in April 2024 compared to 0.02 percent (m/m, SA) in March (Figure 1). Compared with the Month-on-month (SA) Year-on-year same period a year earlier, IIP improved by 6.3 percent (y/y) mostly due to base effects related to a contraction in April of 8 60 2023. Performance among subsectors was mixed with uneven 3 40 monthly growth rates, such as machinery and equipment (8.1 percent m/m, SA), computer and electrical products (4.6 -2 20 percent m/m, SA), wood products (5.4 percent, m/m, SA) and -7 0 motor vehicles (3.2 percent m/m, SA). Viet Nam’s Purchasing Managers’ Index (PMI) rose back above 50, registering 50.3 -12 -20 from 49.9 in March, suggesting a marginal improvement in Apr-22 Oct-22 Apr-23 Oct-23 Apr-24 industrial production prospects with a rebound in new orders in April.1 Merchandise trade remained volatile. High frequency, seasonally adjusted trade data in April 2024 Figure 1: Industrial Production Index shows a decrease in both exports and imports, suggesting an Percent uncertain recovery from last year’s contraction. Exports and imports of goods in April 2024 decreased by 1.6 percent (m/m, Month-on-month (SA) Year-on-year (NSA) SA) and 0.6 percent (m/m, SA), respectively (Figure 3). The contraction in exports was largely due to two groups of products – machines and equipment, which declined 2.41 percent (m/m, 15 SA), and textiles and garments which fell by around 1.7 percent (m/m, SA). Exports to the European Union, Korea, and Japan – Viet 5 Nam’s main exports markets - fell by 1.3 percent (m/m, SA), 5.4 -5 percent (m/m, SA) and 3.9 percent (m/m, SA), respectively. Compared with the same period in 2023, both exports and -15 imports registered sizable growth rates of 11 percent (y/y) and Apr-22 Oct-22 Apr-23 Oct-23 Apr-24 18.8 percent (y/y) in April 2024 respectively, but these were largely due to the low base effect from 2023. Retail sales remained subdued. Retail sales growth registered 0.06 percent (m/m, SA) in April, Figure 3: Merchandise Trade Percent down from 0.94 percent (m/m, SA) in March 2024 (Figure 2). Compared with the same period in 2023, retail sales grew by only 2.07 percent (y/y) in April 2024, down from 3.93 percent Imports (cif, m/m, SA) Exports (fob, m/m, SA) (y/y) in March and well below pre-covid average (11.5 percent, 50 Exports (fob, y/y, NSA) Imports (cif, y/y, NSA) y/y, during 2017-19), suggesting weak consumer demand for both goods and services. Sales of goods (about 80 percent of 30 total retail sales) registered 0.25 percent growth (m/m, SA) in April 2024, down from 1 percent (m/m, SA) in March. Similarly, sales of services moderated in April 2024 registering a subdued 10 growth rate of 0.29 percent (m/m, SA), compared with 1.2 percent (m/m, SA) a month earlier2. The deceleration in monthly -10 retail sales growth is likely due to continued low consumer confidence resulting from the economic slowdown in 2023. -30 Apr-23 Jun-23 Aug-23 Oct-23 Dec-23 Feb-24 Apr-24 FDI remained solid in the first four months of 2024. FDI commitment was US$4.3 billion as end of February 2024, 38.5 percent higher than the same period in 2023 with manufacturing and real estate sector remaining two major sectors of interest. FDI disbursements also registered a solid increase in the first two 1 2 https://www.pmi.spglobal.com/Public/Home/PressRelease/ The SA series of total retail sales and individual components of retail sales (i.e., 6c12187167604a379fcc8554c2df8634 goods and services) do not add up for both levels and growth rates as they are seasonally adjusted separately. PAGE 2 A P R I L 2 0 2 4 • V I ET N AM MAC RO MO N ITO RI NG months of 2024 (9.8 percent higher than the first two interest rate environment, reflects continued caution by months of 2023 (US$1.3 billion) (Figure 4). consumers and investors given mixed economic signals. Figure 4: Foreign Direct Investment Figure 6: Credit growth US$ billion (NSA) Percent (NSA) Manufacturing Wholesales & retail Real estate Electricity, gas & water Month-on-month Year-on-year (LHS) Others Disbursement 20 6 8 15 6 4 4 10 2 2 5 0 -2 0 0 Mar-22 Mar-23 Mar-24 -4 Apr-22 Oct-22 Apr-23 Oct-23 Apr-24 While the BOP was in surplus as of the end of 2023, the Headline inflation accelerated while core inflation exchange rate has been under pressure due to the remained stable. strengthening of the US dollar. CPI inflation rose to 4.4 percent (y/y) in April from 4.0 percent The US dollar index strengthened from 102.4 at the end of (y/y) in March (Figure 5). The increase appeared broad- December 2023 to 105.1 at the end of April 2024, putting pressure based. CPI in transport is driven by the rise of oil prices, which on many exchange rates in East Asia and around the world. The increased by 14.6 percent (y/y, Brent crude oil) reflecting the SBV has managed the depreciation of the central rate to 2 percent strengthening of the US dollar and continued conflicts in (y/y), through interventions and a gradual tightening of the Europe and the Middle East. Food and housing continue to liquidity leading to a mirror rise in overnight interbank rates from remain key contributors to CPI inflation since September 0.51 percent in December 2023 to 4.6 percent in April 2024 (Figure 2022, with prices in some housing market segments (such as 8). The VND/USD market rate, on the other hand, depreciated by apartments) rising in main cities. Core inflation remained 8 percent (Figure 7). stable at 2.8 percent (y/y) in April 2024, comparable to the average level of the past three months. Figure 7: Exchange rate VND/USD Figure 5: Contribution to CPI Inflation Central rate Market rate Percent & percentage point (y/y) 26000 Food Housing Transport 25000 Others Headline Core 6 24000 4 23000 2 22000 0 Apr-23 Oct-23 Apr-24 -2 Apr-22 Apr-23 Apr-24 Figure 8: Interest rates Percent Credit growth remained slow indicating continued Discount Refinancing Overnight interbank weak private investment. 6 Following contractions in the first two months of 2024, credit to the economy increased marginally by 1 percent (m/m) in 4 March. Compared with the same period in 2023, credit growth registered 11.2 percent (y/y) as end of March 2024 2 (Figure 6), below the SBV’s indicative ceiling of 15 percent for the year. The credit growth rate, despite the relatively low 0 Apr-23 Oct-23 Apr-24 PAGE 3 A P R I L 2 0 2 4 • V I ET N AM MAC RO MO N ITO RI NG Budget execution continued to accelerate to support the economy. Cumulative revenue collection increased by 10.1 percent in the first four months of 2024 compared with the same period of 2023, reaching VND 733.4 trillion by the end of April. The improvement was driven by increases in domestic Value Added tax and corporate income tax, partly due to lagged settlement of tax payments, also reflecting moderate some improvements in economic activities. Cumulative public expenditure reached VND 522.2 trillion in the first four months of 2024; 4.4 percent higher than the same period in 2023. Public investment disbursement as end of April 2024 reached VND 115 trillion, equivalent to 14.7 percent of the annual capital budget approved by the National Assembly, and 4.5 percent higher than the same period of 2023. To watch: Continued mixed performance in external and domestic demand raises concerns about the pace of recovery of the economy. Authorities could take actions to support the economy, including through disbursement of the investment budget, and by undertaking structural reforms that help boost private sector productivity. Prospects of an interest rate reduction by the US remain uncertain and given the existing interest rate differential, monetary policy options remain limited. Sources and notes: All data are from Haver and sourced from the Government Statistics Office (GSO) of Vietnam, except: Government budget revenues and expenditures (Ministry of Finance), FDI (MPI); PMI and producer price inflation (survey by S&P Global, Nikkei and IHS Markit; Purchasing Managers' Index is derived from a survey of 400 manufacturing companies and is based on five individual indexes on new orders, output, employment, suppliers’ delivery times (and stock of items purchased). It is seasonally adjusted. A reading above 50 indicates an expansion of the manufacturing sector compared to the previous month; below 50 represents a contraction, while 50 indicates no change); Credit growth (staff calculations based on local official media reporting on SBV’s estimates). Brent crude oil obtained from https://www.hl.co.uk/shares/trading-commodities/brent- crude-oil. The seasonally adjusted series of total retail sales and individual components of retail sales (i.e., goods and services) do not add up for both levels and growth rates as they are seasonally adjusted separately. SA=Seasonally Adjusted; NSA=Not Seasonally Adjusted; LHS = Left-hand Scale; FOB = Free on Board; CIF = Cost, Insurance, and Freight; m/m = month-on-month; y/y = year- on-year PAGE 4