FEBRUARY 2 0 2 4 VIETNAM MACRO MONITORING Photo credit: Dorsati Madani WHAT’S NEW? • Industrial production decreased by 1.1 percent (m/m, SA) in February 2024 as the Tet holiday in 2024 took place in February (instead of January in 2023). Vietnam’s PMI remained in expansionary territory, registering 50.4 in February 2024. • Retail sales increased sharply by 6.7 percent (m/m, SA) in February 2024 compared to 1.5 percent contraction (m/m, SA) in January 2024. However, retail sales registered only 3.7 percent growth compared to the previous year, about half of 2023 average growth (8.3 percent), and a third of pre-covid average (11.5 percent, 2017-2019), suggesting that consumer confidence remains weak following last year’s economic slowdown. • Recovery of merchandise trade remained uncertain. Exports and imports of goods in February 2024 decreased by 7.6 percent (m/m, SA) and 8.5 percent (m/m, SA), respectively. • FDI surged in the first two months of 2024, partly reflecting the low base effect in early 2023, with commitment reaching US$4.3 billion as end of February 2024, 38.5 percent higher than the same period in 2023. Manufacturing and real estate sector remain the major sectors of interest. FDI disbursements also registered a solid increase in the first two months of 2024 (9.8 percent higher than the first two months of 2023 (US$1.3 billion)). • CPI inflation increased from 3.4 percent (y/y) in January to 4.0 percent (y/y) in February 2024, driven by a surge in food prices due to high demand during the Tet holiday. Core inflation also rose from 2.7 percent (y/y) in January 2024 to 3.0 percent (y/y) in February 2024. • Credit by commercial banks contracted by 0.12 percent (m/m) in February 2024 and 0.72 percent compared to December 2023, suggesting continued weakness in private investment. • Public investment disbursement increased by 2.1 percent (y/y) in the first two months of the year, as authorities focus on accelerating the implementation of capital budget to support the economy. It reached VND60 trillion by the end of February, equivalent to 8.9 percent of the capital budget approved by the National Assembly. TO WATCH • The subdued domestic consumption and private investment warrants close monitoring. In contrast, recent high frequency data suggests strong upside risks to growth in advanced economies, especially US which could in turn induce a stronger recovery in Viet Nam. The government could further accelerate the implementation of its public investment program to support aggregate demand. Addressing banking sector vulnerabilities, including strengthening prudential supervision, early interventions and bank resolution and crisis management, would help put the banks on a stronger footing for recovery. PAGE 1 F E B U A R Y 2 0 2 4 • V I E T N AM MAC RO MO NI TO RI N G RECENT ECONOMIC DEVELOPMENTS Industrial production decreased due to the Tet holiday in Figure 2: Retail Sales February 2024. Percent (m/m, SA – LHS; and y/y - RHS) Index of Industrial production (IIP) contracted – by 1.1 percent (m/m, SA) in February 2024 as the Tet holiday 2024 Month-on-month (SA) Year-on-year was in February instead of January in 2023 (Figure 1). However, production increased in some intermediate goods 8 60 categories such as chemicals (27.7 percent, y/y) and textile 6 50 weaving (17.6 percent, y/y), signaling a potential pick up of industrial production in the coming months. In addition, 4 40 Vietnam’s PMI remained in expansionary territory, 2 30 registering 50.4 in February 2024, like 50.3 in January and an 0 20 improvement compared to 2023 when the PMI was in contractionary territory for 10 months. -2 10 -4 0 Figure 1: Industrial Production Index -6 -10 Percent (SA) -8 -20 Feb-22 Aug-22 Feb-23 Aug-23 Feb-24 Month-on-month (SA) Year-on-year (NSA) Recovery of merchandise trade remained uncertain 15 Exports and imports of goods in February 2024 decreased by 7.6 percent (m/m, SA) and 8.5 percent (m/m, SA), respectively (Figure 3). The contraction in exports was largely due to two 5 groups of products – telephones, mobile phones & spare parts, which declined 8.1 percent (m/m, SA), and footwear products -5 which fell by around 5.7 percent (m/m, SA) in February 2024. Exports to two main exports markets, EU and China fell by 10.2 percent (m/m, SA) and 32.1 percent (m/m, SA), respectively. -15 Mirroring the fall in exports, the fall in imports was largely Feb-22 Aug-22 Feb-23 Aug-23 Feb-24 driven by contraction in imports of textiles materials (-33.2 percent m/m, SA), electronics and computer parts (-7.9 percent Retail sales remained sluggish despite the Tet holidays m/m, SA), and smart phones (-8.4 percent m/m, SA). Imports from China fell by 3.8 percent (m/m, SA) as China was also demand boost celebrating the Lunar New Year. Monthly growth of retail sales (a proxy for domestic consumption) sharply increased by 6.7 percent (m/m, SA) in Figure 3: Merchandise Trade February 2024 compared to -1.5 percent (m/m, SA) in January Percent 2024, due to the Tet holiday. Sales of goods registered 1.9 percent (m/m, SA) compared to only 0.08 percent (m/m, SA) Imports (cif, m/m, SA) Exports (fob, m/m, SA) in January 2024. While contributing to only about 20 percent Exports (fob, y/y, NSA) Imports (cif, y/y, NSA) of total retail sales, sales of services recorded strong growth 50 in February 2024, with the sales of accommodation and catering increasing by 13.1 percent (m/m, SA) and sales of 30 travel services increasing by 127.8 percent (m/m, SA) – due to Tet. However, compared with a year earlier, retail sales’ 10 growth registered only 3.7 percent (y/y) in February 2024, about half of 2023 average growth (8.3 percent), and a third -10 of pre-covid average (11.5 percent, 2017-2019) (Figure 2). This suggests that despite the temporary Tet shopping season, consumer confidence remains weak following last -30 year’s economic slowdown. Feb-22 Aug-22 Feb-23 Aug-23 Feb-24 FDI surged in the first two months of 2024, partly reflecting a low base in early 2023 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 months of 2024 (9.8 percent higher than the first two months of 2023 (US$1.3 billion) (Figure 4). PAGE 2 F E B U A R Y 2 0 2 4 • V I E T N AM MAC RO MO NI TO RI N G Figure 4: Foreign Direct Investment Figure 6: Credit growth US$ billion (NSA) Percent (NSA) Total commitment Disbursement Month-on-month Year-on-year (LHS) 8 20.0 6 6 15.0 4 4 10.0 2 2 5.0 0 0.0 0 Feb-22 Aug-22 Feb-23 Aug-23 Feb-24 Feb-22 Feb-23 Feb-24 Headline inflation and core inflation accelerated Budget execution continued to accelerate to support the economy CPI inflation increased from 3.4 percent (y/y) in January to 4.0 percent (y/y) in February 2024, driven by a surge in food Revenue collection improved in February, leading to an increase prices due to high demand during the Tet holiday, as food of 10.4 percent in the first two months of 2024 compared to the constitutes 21.3 percent of the CPI basket. Core inflation same period of last year. Public expenditure was about VND also rose from 2.7 percent (y/y) in January 2024 to 3.0 270.7 trillion in the first two months of 2024, 7.7 percent higher percent (y/y) in February 2024 (Figure 5). than the same period in 2023. In particular, public investment disbursement reached VND 60 trillion, equivalent to 8.9 percent Figure 5: Contribution to CPI Inflation of the annual capital budget approved by the National Assembly, Percent & percentage point (y/y) and 2.1 percent higher than the first two months of 2023. By the end of February 2024, the State Treasury had issued VND Food Housing Transport 37.4 trillion worth of Government bond, equivalent to 30 percent Others Headline Core of the issuance plan in the first quarter of 2024. The average 6 maturity is 11.99 years with an average interest rate of 2.19 percent per annum. 4 To watch: 2 The subdued domestic consumption and private investment warrants close monitoring. In contrast, recent high frequency data suggests strong upside risks to growth in advanced economies, 0 especially US which could in turn induce a stronger recovery in Viet Nam. The government could further accelerate the -2 implementation of its public investment program to support Feb-22 Feb-23 Feb-24 aggregate demand. Addressing banking sector vulnerabilities, including strengthening prudential supervision, early interventions and bank resolution and crisis management, would help put the banks on a stronger footing for recovery. Credit growth decreased, indicating continued weak investment Sources and notes: All data are from Haver and sourced from the Government Statistics Office (GSO) of Vietnam, except: Government After the sharp increase in December 2023, credit growth budget revenues and expenditures (Ministry of Finance), FDI (MPI); contracted by 0.12 percent (m/m) in February 2024 and 0.72 PMI and producer price inflation (survey by S&P Global, Nikkei and percent compared to December 2023 (Figure 6). The slow IHS Markit; Purchasing Managers' Index is derived from a survey of credit growth reflects continued weakness in consumer and 400 manufacturing companies and is based on five individual indexes investors’ confidence, and in private investment. 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 3