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Economic update – Improving manufacturing, easing FX pressure

Economics Note 14/03/2023    182


  • PMI climb above 50-pt threshold in Feb 23 for the first time since Nov 22, signaling a possibility of manufacturing recovery.
  • CPI cooled down to 4.3% yoy in Feb 23 (vs. 4.9% yoy in Jan 23) while deposit rates peaked out across tenures from mid-Feb 23.
  • We forecast Vietnam’s GDP to grow 5.6% yoy in 1Q23F.

Manufacturing activities to bounce back

Index of Industrial Production (IIP) increased 3.6% yoy (+5.1% mom) in Feb 23, from low base as Tet holiday happened in Feb last year (in Jan this year). Purchasing Managers’ Index (PMI) climbed to 51.2pts in Feb 23, ending three months in row below 50-pt threshold, which likely signaled a possible manufacturing recovery in the coming months.

State investment accelerated in Feb 23

According to GSO, the implemented state capital (public investment) in Feb 23 surged 36.9% yoy to VND30.0tr. For 2M23, the implemented state capital rose 18.3% yoy, which is higher than the 14.6% yoy growth in 2M22.

Inflation pressure cooled down slightly in Feb 23

Vietnam’s headline inflation dropped down to 4.3% yoy in Feb 23 from 4.9% yoy last month. On mom basis, Vietnam’s CPI was up 0.45%, a lower monthly gain from January’s increase of 0.52%, mainly supported by the decline of Food & Foodstuff (-0.2% mom) and Education items (-0.6% mom) sub-indexes. We maintain our CPI forecasts of 4.2-4.6% for 1Q23F and 3.6-4.0% for 2023F.

Lower pressure on VND exchange rate as DXY dropped after SVB crash

Dollar Index (DXY) dropped sharply after the collapse of Silicon Valley Bank (SVB) as markets expected the FED to be more dovish on monetary policy. As of Mar 13, 2023, DXY fell to 104.0pts, down 1.3% before the SVB crash. The softer DXY has brought the US$/VND down 0.1% ytd to 26,612. We expect lower pressure on VND exchange rate as FED could be less hawkish about monetary policy after SVB crash. Besides, the improvement of Vietnam’s balance of trade and balance of payments in 2023 will support the VND exchange rate. We remain our view that the US$/VND exchange rate will fluctuate between 23.400 and 23.800 at the end of 2023.

We forecast Vietnam’s GDP to grow by 5.6% yoy in 1Q23F

We expect Vietnam’s economy to grow 5.6% yoy (+/- 0.2% pts) in 1Q23F, slightly lower than the 5.9% growth rate in 4Q22. Strong tourism recovery will offset the manufacturing slowdown. We expect Vietnam’s GDP growth to gradually recover in the remaining quarters of 2023 as we expect China’s reopening could help global economy pick up from a trough. This will support the recovery of Vietnam’s manufacturing and export sectors. We maintain our GDP growth forecast for Vietnam in 2023F at 6.2%.

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