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Economic update – Domestic recovery to cushion external challenges

Economics Note 12/05/2022    219


  • Service and industrial sectors are picking up in April.
  • Headline CPI edged up to 2.6% yoy in Apr 2022 (vs. 1.9% yoy in 1Q22).
  • The Fed’s tightening of monetary policy has a broad impact on Vietnam’s economy, including exports, monetary policy and foreign debt repayment.
  • We keep our 2Q22F and 2022F GDP growth forecast at 5.6% and 7.1%, respectively, fueled by recovery of domestic demand and strong exports.

Service sector to roar back robustly

Gross retail sales of consumer goods and services grew 3.1% mom and 12.1% yoy in April. This is the highest monthly growth recorded since May 2021. For 4M22, gross retail sales rose 6.5% yoy despite the hiccup in Feb-Mar due to the outbreak. We expect the service sector to improve further in the coming quarters thanks to an increase in the number of domestic and international tourists in the context of Vietnam hosting major regional events such as the 31st Sea Games.

Manufacturing activities and exports improved further

Vietnam’s Index of Industrial Production (IIP) rose 9.4% yoy (+2.0% mom). It marked the highest annual growth since June 2021. In addition, Vietnam’s PMI (Purchasing Managers Index) was unchanged at 51.7 in April 2022, indicating that operating conditions for Vietnam’s manufacturing sector are still improving despite the difficulties of higher input prices and supply chain disruptions caused by the Russia-Ukraine crisis. Meanwhile, Vietnam’s export value rose 25.0% yoy to US$33.3bn in April 2022, mostly contributed by the sharp increase in the export of phones of all kinds (+63% yoy).

FED’s monetary policy has a broad impact on Vietnam’s economy

Tighter global financial conditions could dampen growth prospects for the global economy, leading to lower demand for Vietnam’s exports. Rising USD interest rates put pressure on Vietnam’s interest rates, whereby VND deposit rates are expected to increase further by 20-40 basis points for the rest of 2022. A stronger USD affects Vietnam’s exchange rate, although the impact is minimal as supportive factors for dong stability remain such as stronger trade surplus and high foreign exchange reserves. In addition, a stronger USD also increases the foreign debt repayment obligations of the Vietnam’s government and enterprises.

We maintain our GDP growth forecast for Vietnam in 2Q22F at 5.6%.

Though inflation is still top-in-mind risks, we believe the strong domestic recovery including manufacturing, retail and currency will buffer against the external challenges. We maintain our GDP forecasts of 5.6% yoy (+/- 0.2% pts) for 2Q22F and 7.1% for 2022F.

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