Econ Update May 2026 – Economy extends expansion amid external headwinds

• IIP rose 9.2% YoY in 4M26, mainly driven by manufacturing activity (+9.9%)
• CPI rose 5.46% YoY, led by housing and services categories

Growth momentum continued, supported by production and investment

Despite rising input cost pressures, production activity remained firm as April IIP rose 9.9% YoY, improving from 7.2% in March, supported by the ongoing investment cycle and infrastructure expansion. On the investment side, FDI remained a key growth pillar, with registered FDI in 4M26 reaching USD18.2bn (+32.0% YoY), concentrated mainly in manufacturing and high-technology sectors. Meanwhile, implemented public investment increased 10.6% YoY, while credit growth reached 4.64% YTD as of April 30 (+18.3% YoY), indicating that demand for investment capital and production expansion remained robust. We expect these drivers to continue to underpin growth in coming quarters, particularly amid a still uncertain external environment.

Trade activity accelerated, trade balance posted USD7.0bn deficit in 4M26

Total import-export turnover in April was estimated at USD94.3bn (+26.7% YoY), while cumulative 4M26 import growth rose 28.7% YoY, continuing to outpace export growth (+19.7%). We expect exports to gradually improve in coming quarters, supported by the global electronics cycle and resilient US import demand. At the same time, the current wave of machinery and raw material imports is expected to support production activity and IIP in 2H26 as imported inputs are gradually translated into actual production capacity.

Inflation pressures began to broaden

CPI rose 5.46% YoY, the highest level since February 2020, while core CPI accelerated to 4.66% YoY from 3.96% in March. Price pressures broadened beyond transportation into core categories such as Food services (+8.25%) and Housing, electricity, water and fuels (+7.95%). Overall, the trend remained broadly in line with our base-case scenario outlined in a previous report, which expected inflation pressures to stay elevated in Q2 before gradually easing toward year-end. We believe that if oil prices and logistics costs remain elevated, the risk of CPI remaining around or above 5.0% in the near term could increase further, thereby exerting pressure on domestic demand and growth prospects.

Rising prices began to weigh on real purchasing power

Cost pressures started to transmit more visibly into final consumption. Retail sales rose 11.1% YoY in April, but increased only 6.3% after excluding price effects, suggesting that nearly half of current growth came from higher prices rather than real consumption. Meanwhile, tourism revenue and non-essential spending categories started to lose momentum. In our view, if inflation pressures persist without timely policy support from the Government, domestic consumer demand could weaken further, affecting growth prospects in the coming period.

Read the full report: HERE