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Economic Update – Uncertainties emerge

Economics Note 12/05/2021    299


  • Manufacturing sector expanded further with Apr PMI climbing to 54.7pts, the highest level since Nov 2018
  • Service sector experienced stronger recovery in Apr with gross retail sales of consumer goods and services increasing 2.3% mom (+30.9% yoy).
  • We see some emerging uncertainties, including the 4 th outbreak of COVID19 in Vietnam and higher inflationary pressure.

The 4th Covid-19 outbreak might hinder the recovery momentum

The recent Covid-19 outbreak began on 27 Apr when a 63-year-old man in the Yen Bai province was tested positive with the coronavirus, making this the first case of a Covid-19 community transmission after 34 days of no local transmission case. The outbreak has now spread to 26 localities, including Vietnam’s two largest cities, with total cases of 333 as of 9 May. We consider that the new COVID-19 outbreak would hinder the recovery momentum of Vietnam’s economy, especially over the next two months.

Rising inflationary pressure

Headline inflation was 2.7% yoy in Apr 2021 (from 1.2% yoy in Mar 2021). The headline was mostly driven by the 17.7% yoy increase in transportation price index as domestic RON95 petrol price was average at VND19,001/liter which is 45.9% higher than the price level in Apr 2020. We expect inflationary pressure to remain high in May-June 2021 period before cooling down in the second half of 2021.

Vietnam’s economy kicked off positively in 2Q21

Vietnam’s IHS Markit Purchasing Managers’ Index (PMI) reached a 29-month high of 54.7pts in Apr 2021, indicating stronger expansion in manufacturing sector. Meanwhile, gross retail sales of consumer goods and services rose significantly by 30.9% yoy from a very low level of Apr 2020. Note that Vietnam applied national lockdown in Apr 2020, dealing severe blow to service sector

Public investment accelerated to support growth

According to General Statistics Office (GSO), disbursed state capital rose 23.9% yoy to VND30.4tr in Apr 2021. For 4M21, disbursed state capital increased 16.3% yoy to VND98.7tr (above the 14.5% rate seen in 4M20), equivalent to 21.5% of the full-year target.

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