AUGUST 2020 VIETNAM MACRO MONITORING WHAT'S NEWS? In July, the economy continued its road to recovery with reported increases in domestic manufacturing and retail sales of 2.1% (y/y) and 4.6% (y/y), respectively, in line with the easing of social distancing  and mobility restrictions, but still lower that the growth rates registered during the same period of 2019. Showing an unexpected degree of resilience in the depressed international context, Vietnam’s export performance was robust (approximately at the same level than in July 2019) thanks to domestic rather foreign owned firms, while FDI inflows was down only by approximately 7 percent during the first seven months of the year. Inflation increased slightly to 3.4% (y/y) in July, mostly due to higher prices of food products while transport prices declined. The expansion of the credit to the economy has slowed substantially, below 10 % in recent months, reflecting the decline in economic activity despite State Bank of Vietnam (SBV) policy to reduce interest rates and to encourage commercial credit. Widening of the fiscal deficit is expected as, during the first half of the year, only 76% of the revenue reported for the same period in 2019 was collected by the Government. Concurrently, expenditures increased due to the social measures implemented to alleviate the effects of the crisis and efforts to accelerate the execution of the investment program to stimulate the recovery. Looking ahead, the resurgence of community driven COVID-19 infections and new stringency measures, especially in Danang, will certainly impact the pace of recovery of the economy. Such negative impact might be partially compensated by the Government’s effort to accelerate the execution of its investment program, notably in provinces. PAG PNE 01 AUGUST 2020 • VIETNAM MACRO MONITORING RECENT ECONOMIC DEVELOPMENTS As of August 11, the country registered 847 while increasing social distancing in other cities. The infections and 15 deaths mostly as the result of the recent increase in the national stringency index and new wave of community driven infections in the the sharp decline in the number of domestic flights Danang region. After almost 100 days of zero since early August are reflected in the related graph. community driven infections, Vietnam declared its Industrial Production Index (% change, y/y) first new community case on July 25. Since then, 389 new cases have been reported, mainly in the Da Nang City (271), Quang Nam province (74) and neighboring provinces but also in HCMC and Hanoi. Testing and tracing have intensified, with 182,267 people being medically monitored and quarantined, including 5,139 at hospitals, 28,408 at centralized quarantine camps, and 148,720 at their places of residence. Covid-19 - Cases in Vietnam (cummulative) Prior to the recent outbreak, the domestic economy continued its rebound with the industrial production index (IPI) up 2.5% (y/y) in July. The rate of expansion was nonetheless slightly lower than the reported in May and June. Similarly, retail sales of goods and services continued to recover, growing by 4.6% (y/y). Both manufacturing and retail sales reported year-on-year growth rates lower than their respective growth rates in June 2019, indicating that the economy had not yet fully bounced back to its pre-crisis activity levels. Vietnam domestic economic rebound Retail sales (% change, y/y) continued, albeit not yet at the pace of the pre-crisis level. Stringency index and flight tracking Overall merchandise trade continued  to recover, driven by domestic rather than foreign exporting firms After three weeks of intensive lockdown in April, the Government gradually eased social distancing In July, Vietnam’s was able to maintain its and mobility restrictions, up to the recent COVID- merchandise trade surplus with a monthly surplus of 19 outbreak in Danang at the end of July. Over the $1.6 billion, yielding a surplus of $9.4 billion for first past few days, the Government has reintroduced seven months of 2020, up from $3.3 billion over the stringent mobility restriction measures in Danang  abc abc PAGE 02 AUGUST 2020 • VIETNAM MACRO MONITORING same period in 2019. The value of total exports COVID-19 curve and being located next to China, slipped 1.4% compared to June 2020 but is may take advantage of the revamping of global value comparable to July 2019. Exports performance of chains and the ongoing effort by multinational to the domestic economic sector shows stronger signs diversity their risks. of recovery (up by 10.6%) while foreign owned exporters suffered a decline in the sales of While CPI remains subdued approximately 5% compared to one year ago. While most destination markets declined, increases were The July CPI remained flat compared to June (100.4) reported for the US, EU and Japan in July. Overall and core inflation registered minimal increase. The import values increased 2.0% compared to June flat monthly CPI is associated with lower food prices 2019 but are still about 3.6% lower than in July compared to June, while transport costs rose. The 2019. CPI was up 3.4% (y/y). International trade (USD billions) Consumer price index (% change) And the credit expansion is unwound International tourist arrivals to Vietnam in the first The year on year rate of change of credit to the seven months of 2020 is estimated at 3.76 million, economy fell steadily since February, dropping to 9.3 down 62% (y/y). % y/y in June. This rate, though historically low, is still several times higher than the GDP growth rate. FDI shows resilience too... It reflects the easing of monetary and credit conditions by SBV to support vulnerable firms. Foreign Direct Investment (USD billions) While justified, such policy should be carefully watched at it has reduced bank’s margins in an environment where the rate of delinquent loans has already increased rapidly. Credit (% change, y/y) Foreign Direct Investment (FDI) flows into Vietnam strengthened in July compared to May and June. However, overall FDI commitments declined by 7% However, government balances should be (y/y) during the first 7 months of 2020 compared to watched carefully the same period of 2019. The surge observed since Since April, government revenues have fallen end April capture the stronger interest of foreign substantially, while expenditures increased in investors in Vietnam, which, by being ahead of the response to the crisis. In the first half of the year, the abcdes reported PAGE 03 AUGUST 2020 • VIETNAM MACRO MONITORING government collected only 76 % of the revenue To watch: Vietnam economy rebounded quickly reported for the same period in 2019 as the result of after the removal of domestic restrictions associated slower economic growth and deferred tax payments with Covid-19 lockdown, and the relatively good for businesses and individuals in response to the performance of the export sector. The late July 2020 crisis. In line with its objective to raise public outbreak in Danang and the response of the investment as a stimulus to economic recovery, authorities to control it may affect the pace of disbursement was estimated at total VND45.7 economic recovery going forward.  Greater trillion (US$1.97 billion) in July, representing a rise attention will need to be paid to the growth and of 51.8 % against the same period last year. Over the fiscal impacts of the crisis and policies to redress first seven months of the year, total disbursement of them in the medium to long term. public investment reached VND203 trillion,   equivalent to 42.7 % of the plan for the full year and Sources: All data are from the Government Statistics up by 27.2 % over the same period in 2019.  Office of Vietnam and hosted by Haver Analytics,   except: COVID-19 cases (which is from the Johns After several months of slow activity on the Hopkins University Coronavirus Resource Center); and domestic capital market, the State Treasury raised the June 2020 value for FDI (Ministry of Investment and more than 58.67 trillion VND (over 2.5 billion USD) Planning); the June value for credit growth (WBG in July, up by 80 percent against June. Vietnam team); the stringency index and flight tracking (WBG Vietnam team, various sources, https://blogs.worldbank.org/eastasiapacific/reo Government Revenue and Expense (VND quadrillion) pening-international-flights-during-covid-19-new-real- time-big-data-dashboard). Retail sales, international trade, and consumer price index are seasonally adjusted; international trade is also adjusted for the Lunar New Year. PAGE 04