JANUARY 2 0 2 5 VIETNAM MACRO MONITORING Photo credit: Shutterstock WHAT’S NEW? • The Index of Industrial Production (IIP) increased in December as businesses ramped up production to meet year-end consumer demand. However, manufacturing sales prospects face some uncertainty as the PMI entered contractionary territory, falling from 50.8 in November to 49.8 in December as new orders growth slowed. • Exports picked up in December in response to the western holiday season and some frontload shipments ahead of potential US tariff measures. Exports were mainly driven by computers, electric products and parts and textiles. Mirroring the expansion of export growth, import growth, including of components and intermediate goods accelerated. The trade balance was US$ 524 million in December, equivalent to one quarter of the trade balance in December 2023 as imports recovered faster than exports. • Retail sales increased by 1.2 percent (m/m, SA) or 9.3 percent y/y in December 2024 after stagnating month-on-month in November 2024, driven by higher sales of both goods and services. • Consumer Price Index (CPI) inflation increased slightly in December to 2.9 percent, driven by higher costs of building materials and maintenance services. • FDI commitment surged in December 2024, driven by increased commitments in the manufacturing sector. As of end of December, FDI disbursement was US$25.4 billion, 9.4 percent higher than a year ago. • Credit growth reached an estimated 15.1 percent y/y, in line with the SBV’s target of 15 percent y/y for 2024. • The VND/USD market exchange rate remained stable in December supported by SBV foreign reserves sales (US$ 2.8 billion over Sept-Dec) as well as tighter liquidity via open market operations (purchases worth VND 106 trillion or US$ 4.2 • Revenue collection for 2024 was 16.2 percent higher than in 2023, equivalent to 119.8 percent of planned revenue, due to improved economic activities. Recurrent expenditure was 12.5 percent higher than 2023 and equivalent to 94.5 percent of planned. Disbursement of public investment was estimated at 77.5 percent of Prime Minister’s approved budget allocation as end of December 2024, below the 81.9 percent disbursement rate from the same period last year. TO WATCH • The on-going re-organization of state agencies may in the short run disrupt institutional effectiveness, delay public infrastructure projects, and slow business approval processes. The Vietnamese government aims to reduce the number of public servants by about 20 percent through reorganization. The Ministry of Home Affairs estimates that implementing these reforms will require approximately VND 130 trillion (US$ 5.1 billion) for severance payment for officials, workers, commune-level civil servants; for social insurance contributions; and for training and development costs. At the same time, reducing the number of civil servants by 20 percent is expected to reduce the wage bill by approximately VND 113 trillion over the next 5 years. • The Ministry of Finance outlined its planned budget for 2025, targeting a budget deficit of 3.8 percent of GDP, higher than the 3.6 percent balance targeted for 2024. PAGE 1 J A N U A R Y 2 0 2 5 • V I ET N AM MAC RO MO NI TO RI N G RECENT ECONOMIC DEVELOPMENTS Industrial production increased in December 2024 Figure 3: Retail sales Percent (m/m and y/y, SA) The Index of Industrial Production (IIP) increased from 1.6 percent (m/m, SA) in November to 2.1 percent (m/m, SA) in Month-on-month (SA) Year-on-year (NSA) December 2024 (Figure 1), as businesses ramped up production to meet year-end consumer demand. The 20% improvement is due to the increased production of key 15% export products such as textiles, footwear, furniture, 10% electronics, and electrical equipment. Manufacturing 5% production for domestic consumption such as food and 0% beverages also expanded. However, in terms of prospects, -5% Viet Nam’s PMI was down from 50.8 in November to 49.8 in -10% December, entering contractionary territory (Figure 2), as Jun-23 Jun-24 Dec-22 Dec-23 Dec-24 Oct-23 Feb-24 Oct-24 Feb-23 Apr-23 Apr-24 Aug-23 Aug-24 new orders growth slowed, while firms scaled back employment and inventories. Figure 1: Index of Industrial Production Exports and imports picked up Percent Exports and imports increased by 4.1 percent (m/m, SA) and 6.1 percent (m/m, SA), respectively (Figure 4), indicating Month-on-month (SA) robust external demand. It was mainly driven by computers, 20 Year-on-year (NSA) electric products, and parts (17.8 percent m/m) and textiles (10.5 percent m/m). Year-on-year exports growth picked up 10 from 8.2 percent in November to 12.8 percent in December. Mirroring the expansion of export growth, import growth 0 accelerated from 9.8 percent y/y in November to 19.2 percent y/y in December (Figure 4). The trade balance was US$ 524 -10 million in December, equivalent to one-quarter of the trade balance in December 2023 as imports recovered faster than -20 exports. Nov-22 May-23 Nov-23 May-24 Nov-24 Figure 4: Merchandise trade Figure 2: Manufacturing PMI Percent Imports (cif, m/m, SA) 50+ = Expansion (SA) Exports (fob, m/m, SA) Viet Nam Global ASEAN 50 Exports (fob, y/y, NSA) 30 55 10 -10 50 -30 Dec-22 Jun-23 Dec-23 Jun-24 Dec-24 45 Dec-22 Jun-23 Dec-23 Jun-24 Dec-24 FDI commitments and disbursement surged FDI commitments surged in December 2024 to US$ 6.8 billion Retail sales growth improved in December 2024 from US$ 4.1 billion in November, driven by commitment in manufacturing sector (Figure 5). FDI disbursement increased Retail sales increased by 1.2 percent (m/m, SA) or 9.3 from US$ 2.1 billion in November to US$ 3.7 billion in percent y/y in December 2024 (Figure 3). Accounting for December. As of end of December, FDI disbursement was almost 80 percent of total retail sales, the sales of goods US$25.4 billion, 9.4 percent higher than a year ago. increased by 1.2 percent (m/m) in December. The sales of services improved by 0.7 percent (m/m) in December thanks to the ongoing recovery of foreign tourism. The number of international visitors increased by 27.4 percent y/y in December due to the Christmas holidays. By the end of December, the year-to-date total reached 17.6 million visitors, nearly matching the 18 million recorded in 2019, the peak year for tourism before COVID. PAGE 2 J A N U A R Y 2 0 2 5 • V I ET N AM MAC RO MO NI TO RI N G Figure 5: Foreign direct investment The exchange rate pressures moderated US$ billion (NSA) The VND/USD market rate depreciation eased in December, with Manufacturing Wholesales & retail a depreciation of less than 0.1 percent m/m in December 2024 Real estate Electricity, gas & water compared to 1.2 percent m/m in November 2024 (Figure 8). The SBV stabilized the exchange rate by drawing down foreign Others Disbursement reserves, selling about US$ 9.4 billion in 2024 according to the 8 VDSC (current reserves are $80 billion or about 2.5 months of 6 imports). The SBV also purchased around VND 106 trillion (US$ 4.2 billion) via OMO and VND 2.3 trillion (US$ 93 million) by 4 issuing T-bills and repos. Over this period, the USD continued to 2 strengthen with a U.S. dollar index (DXY) growth of 1.9 percent 0 over December 2024 (-0.2 pp from November). The average Dec-22 Jun-23 Dec-23 Jun-24 Dec-24 overnight interbank interest rate decreased from 4.8 percent to 4.0 percent in December (Figure 9). Headline inflation and core inflation stayed well Figure 8: Exchange rate below the policy target VND/USD The Consumer Price Index (CPI) inflation increased slightly from 2.8 percent in November to 2.9 percent in December, Central rate Market rate 26000 driven by higher costs of building materials and maintenance services (Figure 6). Core inflation was flat, 25000 registering 2.9 percent (y/y) in December 2024, compared with 2.8 percent (y/y) in November. 24000 Figure 6: Contribution to CPI inflation Percent & percentage point (y/y) 23000 Food Housing Transport 22000 Others Headline Core Dec-22 Jun-23 Dec-23 Jun-24 Dec-24 6 4 Figure 9: Interest rates Percent 2 Discount Refinancing Overnight Interbank (AVG) 0 6 -2 Dec-22 Jun-23 Dec-23 Jun-24 Dec-24 4 2 Credit growth reached SBV’s target Credit growth increased by 3.1 percent m/m, supporting 0 the expansion of the economy. Credit growth reached an Dec-22 Jun-23 Dec-23 Jun-24 Dec-24 estimated 15.1 percent y/y by December 2024, matching SBV’s target of 15 percent y/y for 2024 (Figure 7). Revenue collection improved but public investment Figure 7: Credit growth disbursement continued to face challenges Percent (NSA) Revenue collection in 2024 was 16.2 percent higher than 2023, Month-on-month Year-on-year (LHS) equivalent to 119.8 percent of planned revenue, due to 18 improved economic activities. Recurrent expenditure was 12.5 5 16 SBV's target percent higher than 2023 and equivalent to 94.5 percent of the 14 4 plan. Disbursement of public investment was estimated at 77.5 12 percent of Prime Minister’s approved budget allocation as end 10 3 of December 2024. However, it was still below 81.9 percent 8 2 disbursed in the same period of last year. 6 4 1 2 0 0 Dec-22 Dec-23 Dec-24 PAGE 3 J A N U A R Y 2 0 2 5 • V I ET N AM MAC RO MO NI TO RI N G 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). 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