Vietnamese economy getting back to speed: IHS Markit

Must Read

After a rocky third quarter due to the fourth wave of COVID-19, business activities have gradually resumed to normalcy since early October in Vietnam.

The economy getting back to speed

These early positive signs were first reflected in the manufacturing sector, with the IHS Markit manufacturing Purchasing Managers’ Index (PMI) returning to above-50 in October after a four-month run of sub-50 readings. The index rebounded sharply to 52.1 in October and then to 52.2 in November, from 40.2 in September. Other indicators for October and November also point to a steady recovery from the third quarter of 2021 slump.

Data released by the statistics office (GSO) show that Vietnam’s business activities are showing signs of normalising especially for the external sectors including manufacturing and trade-related businesses. Exports in November gained 18.5 per cent on-year, while imports rose by 20.8 per cent with a trade surplus of $100 million. Year-to-date to November, exports and imports values have reached a record high of $300 billion, respectively, well above the export value of $280 billion and import value of $262 billion in 2020. However, the surge in imports has caused Vietnam’s trade surplus to fall sharply to $1.8 billion cumulatively in 2021, a fraction of the $20 billion surpluses in 2020.

Equally important, industrial production rose by 5.6 per cent on-year in November, after three months of contraction as a result of lockdowns in many parts of the country. Year-to-date, industrial production has risen nearly 5 per cent on-year in November, above the 3.3 per cent pace in the same period last year.

“It is worth noting that despite the wave of COVID-19 infections and lockdowns during the year, foreign direct investment (FDI) inflows continued into the country. This suggests that investors’ confidence remains high with Vietnam, which is a main production hub in the supply chain shifts as the Regional Comprehensive Economic Partnership (RCEP) goes into force from January 1, 2022,” highlighted an expert of UOB, one of the leading banks in Asia.

FDI inflows to Vietnam came to $26.5 billion year-to-date to November, keeping pace with that of 2020, as both existing and new FDI inflows totalled more than $22 billion, outpacing the $20 billion in the same period in 2020.

Domestically, however, the services sector continued to underperform. Declines in overall retail sales accelerated for the fourth straight month in November, declining by 8.7 per cent on-year. However, retail sales and other related services sectors are expected to gradually recover with the re-opening of inbound tourism.

The latest data points suggest a reversal from the slump in the third quarter of 2021, which saw headline GDP contract an unprecedented 6.17 per cent on-year (compared to a 6.57 per cent gain in the second quarter of 2021). With external-related sectors continuing to perform well, we expect the fourth quarter’s GDP growth to rebound to 7 per cent on-year. This will bring full-year GDP growth to 3 per cent.

“Barring any major disruptions such as those from the Omicron variant, Vietnam is likely to move towards a more “normal” economic expansion of 7.4 per cent in 2022 (official projection: 6.0-6.5 per cent), considering the low bases in 2020 and 2021 and the strengths of its external sectors,” the expert of UOB forecasted.

Central bank: Holding steady to support recovery

Vietnam’s inflation rate held steady in November, at 2.1 per cent on-year, largely driven by the jump in fuel costs, while other price components behaved relatively well, year-to-date, inflation averaged at 1.8 per cent on-year or about half the 3.6 per cent reading in the same period last year. As such, for 2021 inflation is on track for a moderate increase of 1.9 per cent compared to 3.2 per cent in 2020, and then rising to 3.2 per cent in 2022.

“With a relatively benign inflation backdrop and an uncertain outlook posed by the emerging Omicron variant of COVID-19 just as the country regained its footing from the last wave of infections, the State Bank of Vietnam (SBV) is likely to keep its policy steady to support the recovery efforts,” said UOB expert. As the situation is expected to be managed well eventually just like it had done so before, both the refinancing rate at 4.0 per cent and the rediscounting rate at 2.5 per cent will remain at record lows for now.

The VND has been gradually appreciating against the USD across the year, with gains accelerating after Vietnam has reached an agreement with the US Treasury in July to refrain from deliberately weakening the VND to gain an export advantage. The VND touched its strongest level since February 2017 on November 12, at VND22,645 per USD as compared to VND23,080 per USD at the start of the year. In December, VND reversed sharply after a series of weak VND fixings with a higher demand to buy USD/VND from both corporate clients and banks’ trading activity. The move erased all of VND’s year-to-date gains, with the USD/VND trading at about VND23,100 per USD as of December 15.

“While the US Treasury has refrained from naming Vietnam as an FX manipulator in the latest report in December, the country has met all three criteria for the label. As such, Vietnamese authorities would want to avoid the recent market volatility and be seen as a ‘competitive devaluation’,” urged the expert.

“Overall, we expect USD/VND to continue to rise, alongside the trend for other USD/Asia pairs as the Fed begins rate hikes next year. Our updated USD/VND forecasts are at 23,100 in the first quarter of 2022, at 23,200 in the second quarter, at 23,300 in the third, and 23,400 in the fourth.”

Source: VIR

Businesses continue to pin their hopes on the swift recovery of Vietnam’s economy, with foreign ones in particular cautiously optimistic about their prospects in the country moving into next year.

- Advertisement -spot_img


Please enter your comment!
Please enter your name here

- Advertisement -spot_img

Latest News

Flower festival in Ho Chi Minh City’s Phu My Hung attracts multiple visitors

Despite having yet to be inaugurated, a flower festival with the theme ‘Xuan Phon Vinh’ (Prosperous Spring) in the...
- Advertisement -spot_img

More Articles Like This

- Advertisement -spot_img