Vietnam: Recovery continues

• Nov 16, 2020

After eight months of slump in a row, Vietnam’s economy has begun to make a comeback during the last two months, from both the supply and demand sides.

As regards supply, in October alone, the overall industrial index was estimated to grow by 3.6% month-on-month and 5.4% year-on-year.

Of this, although the mining industry suffered a setback of minus 14.5%, the manufacturing-processing sector posted an encouraging growth rate of 8.3%. A breakdown of this sector shows that some industries generated sharp increases over the same period last year. Specifically, drug production and pharmaceuticals grew by 25.4%; machinery and equipment by 20.2%; electronics, computers and optical tools by 16.9%; metal production by 15.2%; food production by 10.9%; and furniture by 10.1%.

Despite an impressive acceleration in October, the lackluster performances during the first six months of the year resulted in the overall industrial index in the first 10 months of only 2.7% year-on-year. In the first 10 months of 2019, the y-o-y rate was 9.5%.

When it comes to demand, the total retail sales of goods and services in October were estimated at VND450,800 billion, rising by 2.4% month-on-month and 6.1% year-on-year. Of this, retail sales of goods reached VND356,500 billion, posting a 2.5% rise month-on-month and 11% year-on-year; sales of food and accommodation services were VND44,800 billion, rising by 2.1% month-on-month and declining by 9% year-on-year; sales of travel services were VND1,200 billion, declining by 0.1% month-on-month and 69.8% year-on-year; and sales of other services were VND48,300 billion, rising by 2% month-on-month and dropping by 4.4% year-on-year.

Overall, in the first 10 months of 2020, the total sales of goods and services reached VND4,123,000 billion, a y-o-y rise of 1.3%. However, if price adjustment is taken into account, it will be a decline of 3%. In the same period of 2019, the growth rate was 9.7% year-on-year.

Consequently, versus supply, the recovery of demand remains weaker, which means that the recovery of growth in the coming time will depend largely upon whether consumers can bolster their purchasing power.
Cooler inflation

The monthly consumer price index (CPI) in October this year was merely 0.09%, according to the General Statistics Office. This is the third consecutive month that the monthly CPI has gone virtually flat. The CPI by the end of October rose by 2.45% year-on-year and the average CPI in the first 10 months was 3.71%.

Of the CPI rate of 0.09% in October 2020, six out of 11 groups of goods and services posted a positive rate. The group of educational goods and services posted the highest rate, at 1.52%, making the overall CPI grow slightly by 0.09% due to the fact that nine centrally-governed cities and provinces embarked on their roadmaps of increasing educational fees for the new school year of 2020-2021. Next came the group of housing and building materials which posted a growth rate of 0.29%, mainly because of gas price (rising by 1.77%). Some other groups also made insignificant gains, such as food and beverages (0.08%); garments, headgear and footwear (0.06%); cigarettes and health services (0.01%); and the rest (0.09%).

On the contrary, the groups of goods and services witnessed a decline in CPI were cultural products, entertainment and tourism (minus 0.18%); eateries and food services (minus 0.13%, in which cereal food rose by 0.16% while processed food declined by 0.28% due mostly to pork prices falling by 2.84%; transportation (minus 0.08%, due mostly to a decrease in fuel prices in late September). The group of household utensils and appliances remained unchanged.

The above figures show that inflation has been cooler since the beginning of the year. During the last two months of 2020, inflation may rise slightly as the rate of the group of cereal food and processed food is likely to increase as an aftermath of flooding in central Vietnam.

It is estimated that the y-o-ye inflation at the end of this year may be more or less 1% while the average inflation for the whole year may be between 3-3.5%.

Public investment: sustaining the growth

Public investment is believed to keep rising despite a certain negative effect of flooding in the central region on the work progress in October of some public-funded projects. The disbursed capital funded by the State reached VND52,000 billion in October, a strong surge of 42.2% from the year-earlier period. Of this, the capital managed by the central Government was 41,700 billion, a rise of 61.9% and that managed by local governments was VND41,700 billion, a growth rate of 38%.

Overall, during the first 10 months of 2020, disbursed capital funded by the State reached VND354,600 billion, equal to 69.8% of the year’s target and rising by 34.4% year-on-year (the figures in 2019 were 68.8% and 6.7%, respectively).

In the meantime, foreign direct investment (FDI) in Vietnam—both fresh and increased capital, and capital contribution/capital used to purchase shares—had been US$23.5 billion by October 20, 2020, a fall of 19.4% from the year-ago period. Some 2,100 new projects were licensed in this period grossing total registered capital of US$11.7 billion, a fall of 32.1% in the number of projects and 9.1% in registered capital year-on-year.

The decline in the number of new foreign-invested projects was partly caused by the Covid-19 pandemic and partly by the fact that in 2019 there were many huge projects in terms of capital, for instance the US$4.2 billion project to build a smart city jointly invested by Sumitomo and BRG.

In spite of a decline in new investment, increased capital made by existing FDI projects reached US$5.7 billion, a rise of 4.4% from the year-earlier period. This may indicate stronger confidence shown by foreign investors in Vietnam’s business environment.

SGT

Source: https://vietnamnet.vn/en/business/recovery-continues-688820.html