MAY 2021 VIETNAM MACRO MONITORING Lusin_da_ra / Shutterstock.com WHAT'S NEWS? Vietnam is experiencing the fourth outbreak of locally transmitted COVID-19 infections that started in late April 2021, triggering swift responses from the government that closed schools and imposed new mobility restriction measures. In April 2021, industrial production continued its solid expansion while retail sales rebounded after two consecutive months of decline. Merchandise exports fell slightly but remained exceptional thanks to on-going recovery in U.S. and China, while foreign direct investment inflows slowed down after two months of increase. Prices rose by 0.5 percent (m/m) in April 2021 as the result of the rebound in private consumption after the end of the third COVID-19 outbreak. The budget registered a surplus in the first four months of 2021 as revenue collection rose by 7.3 percent (y/y) while slower public investment disbursement contributed to a decline in total expenditure. Looking ahead the ongoing economic recovery can be negatively affected by the fourth COVID- 19 outbreak. If the new restrictive health and mobility measures need to be maintained or increased, the government may want to consider a new fiscal stimulus that would include a more generous assistance package for COVID-19 affected people and businesses. PAG PNE 01 MAY 2021 • VIETNAM MACRO MONITORING RECENT ECONOMIC DEVELOPMENTS Vietnam is experiencing the fourth outbreak of Figure 2: Mobility trends - 7 days moving average locally transmitted COVID-19 infections that (% change compared to baseline in the period started in late April 2021. This outbreak is Jan 3–Feb 6, 2020) affecting multiple regions and the three main cities of Hanoi, Ho Chi Minh City and Da Nang. The authorities have immediately increased mobility restrictions and precautionary public health measures such as school closures. They have continued with tracing, testing and quarantining practices. As of May 10, all time total infections stood at 3,489 with only 35 deaths (Figure 1). COVID-19 vaccinations accelerated in April, with 506,000 doses administered, compared to about 50,000 at the end of March. The government has announced that it will allocate 12.1 trillion VND (over US$520 million) to Industrial production continued to expand procure more COVID-19 vaccines. thanks to robust external and recovering domestic demand Figure 1: COVID-19 cases and stringency Figure 3: Industrial Production Index (% change, NSA) Prior to the fourth wave, mobility was improving fast, but it is deteriorating again Industrial production index increased by 1.1 with new restrictions percent (m/m) and 24.1 percent (y/y) in April 2021 (Figure 3). The high y/y growth rate is to a During most of April, most mobility indicators large extent due to the low base effect as improved significantly as the third COVID-19 production was hit hard by the pandemic related outbreak was brought under control. They also lockdown in April 2020. The continued spiked up at the end of the month as expansion also reflects recovering domestic Vietnamese celebrated the second-longest consumption in addition to solid external national holidays in observance of National demand for high-tech manufacturing products. Reunification Day and International Labor Day. The most dynamic sub-sectors include beverage, Yet, such indicators are deteriorating in May as clothing, and home appliances, basic metals, the result of stronger mobility restrictions electronics, computers and optical products, and (Figure 2). machinery. The PMI index rose from 53.6 in March abcd abcd PAGE 02 MAY 2021 • VIETNAM MACRO MONITORING March to 54.7 in April, marking it the sixth Foreign-owned exporters continued to prove consecutive month of continuous expansion of more dynamic and resilient than local manufacturing. exporting firms. High import growth was mainly attributed to booming imports from Retail sales rebounded in April China, Korea, and ASEAN, reflecting heavy reliance of Vietnam’s exports on foreign Retail sales grew by 2.3 percent (m/m) in April materials and intermediate goods. 2021, reflecting the partial recovery of consumer demand from the third outbreak of Figure 5: International Trade (USD billion, SA) coronavirus in late January 2021. This rebound was driven by 1.9 percent (m/m) increase in sales of goods while services grew by 3.8 percent (m/m). However, the overall level of sales was still lower than in January 2021 (Figure 4). Figure 4: Retail sales and government stringency index Foreign direct investment (FDI) inflows declined in April, but the overall level has been almost stable during the first four months of the year Vietnam attracted $US 2.2 billion of FDI in April 2021, which was 53 percent lower than in the previous month, and 42 percent lower than a year ago (Figure 6). This decline partly reflects Merchandise trade continued to perform month-per-month variations in the value of exceptionally well, driven by robust demand commitments by individual investors. Over the from U.S. and other major trading partners first four months of the year, the level of FDI was almost the same as during the Expansion of goods exports eased slightly by 3.4 corresponding period in 2020. percent (m/m) while imports continued to grow by 2.6 percent in April 2020 (Figure 5). Over the Figure 6: Foreign Direct Investment (USD billion, NSA) first four months of 2020, exports and imports grew by 26 percent and 31 percent (y/y), respectively. Trade expansion was fueled by the recovery in the U.S. and China and to a lesser extent by the EU, ASEAN, and Korea. Double-digit (y/y) growth rates were recorded across all major export categories in the first four months of 2021. The fastest expansion was in machinery, followed by computers and electronics, and phones. Footwear, and textiles and garments also recovered strongly (up by 19 percent and 10 percent (y/y), respectively). PAGE 03 MAY 2021 • VIETNAM MACRO MONITORING Inflation accelerated in April 2021 as consumer interbank interest rate also increased from 0.29 demand rebounded after the third wave of percent in March to 0.48 percent in April. COVID-19 was contained The budget registered a surplus in the first The Consumer Price Index (CPI) increased by 0.5 four months of 2021 percent (m/m), mainly driven by higher prices of consumer goods, including food, beverage and The fiscal situation has improved as the cigarettes, clothing, and household supplies and government budget registered a surplus of appliances (Figure 7). This reflects the recovery approximately 80 trillion VDN during the four of household consumption from the third local first months of the year. Revenues reached outbreak of coronavirus. 543.4 trillion VND, about 40.5 percent of the annual target, and 7.3 percent higher than the Figure 7: Consumer Price Index (% change, SA) same period last year. Between January and April 2021, the government spent 463.7 trillion VND, which is two percent lower than a year ago. The main source of decline was the slower disbursement of public investment projects, down by 3.7 percent compared to the same period last year. ODA-financed projects only disbursed one-third of the value that was recorded during the same period of 2020. In April, the State Treasury borrowed 26.3 trillion VND from domestic market, double the amount observed in March. Over the first four months, a total of 65.5 trillion VND was raised, equivalent to only 17.8 percent of the annual target for 2021. All bonds were issued Credit growth accelerated as businesses with maturities of five years or longer and the ramped up production to meet higher demand average yield for 10-year maturity bonds was during the national holidays 2.36 percent, or approximately nine basis points higher than in March. This confirms the Figure 8: Credit Growth (Percent, y/y) rising trends in borrowing cost observed since January 2021. To watch: The fourth COVID-19 outbreak has led to a sharp increase in community transmitted infections, forcing the government to close schools in many provinces and to reinstitute precautionary health and mobility restrictions measures. Depending on the magnitude of the outbreak and how quickly the government will be able to bring it under control, domestic economic activities will be affected, especially those in sectors such as tourism, transports, Credit to the economy grew by 2 percent (m/m), and retail. If this happens, the government may reflecting increased demand for credit as wish to consider boosting domestic demand by businesses responded to the stronger consumer adopting a more accommodative fiscal policy, demand during the national holidays in late April including increasing its support to affected and early May (Figure 8). Average overnight businesses and people. abcdef PAGE 04 MAY 2021 • VIETNAM MACRO MONITORING Sources and notes: 50 indicates no change); financial sector data, including credit information (State Bank of Vietnam, All data are from Haver and sourced from the FiinResearch; credit growth in March and April 2021 Government Statistics Office (GSO) of Vietnam, (calculated by World Bank staff based on data from except: Government budget revenues and MPI); number of confirmed COVID-19 cases and expenditures (Ministry of Finance and Ministry of COVID-19 doses administered, and Google Planning and Investment (MPI)), FDI (MPI); PMI community mobility (the baseline is the median (survey by Nikkei and IHS Markit; Purchasing value, for the corresponding day of the week, during Managers' Index is derived from a survey of 400 the 5-week period Jan 3–Feb 6, 2020, and changes manufacturing companies and is based on five for each day are compared to a baseline value for individual indexes on new orders, output, that day of the week) (World Bank High Frequency & employment, suppliers’ delivery times (and stock of COVID data dashboard); Treasury Bonds (Hanoi items purchased). It is seasonally adjusted. A Stock Exchange). reading above 50 indicates an expansion of the manufacturing sector compared to the previous SA=Seasonally Adjusted; month; below 50 represents a contraction; while NSA=Not Seasonally Adjusted. 50 abcd PAGE 05