Hanoi (VNA) – Experts from the World Bank (WB) have recommended Vietnam continue support for aggregate demand through capital expenditures, given that the reduction of interest rates to aid investment could intensify pressures on the exchange rate amidst the strong USD.
According to the WB’s Vietnam Macro Monitoring report for May released on June 19, industrial production picked up in the month thanks to improved exports. The index of industrial production (IIP) rose by 2.6% month-on-month on the back of the strong growth in manufacturing sectors such as machinery and equipment (9.8%), and computer and electrical products (2.2%).
The index grew by 8.9% compared to 0.5% year-on-year in May 2023, driven by stronger exports and low base effect from the previous year.
The Purchasing Managers’ Index (PMI) was unchanged at 50.3 in May. The bank said new orders increased which suggested a faster expansion of production in the coming months.
Besides, goods exports increased by 6.5% from a contraction in April, spurred by high-tech products. In parallel, imports recovered, growing by 9.5% month-on-month in May, compared to minus 0.6% in April.
Compared with the same period in 2023, both exports and imports registered sizable growth rates of 15.8% year-on-year and 29.9% year-on-year in May 2024, respectively, partly due to the low base from 2023.
Although higher import growth than export expansion translated into a smaller trade surplus in May, it indicated an increase in export demand.
FDI commitment reached 11.07 billion USD as of the end of May, or 2% higher than the same period last year. Cumulative FDI disbursement improved, rising 7.8% year-on-year to 8.3 billion USD. Most FDI continued to flow into manufacturing and real estate sectors.
While headline inflation remained unchanged, core inflation moderately slightly. CPI inflation remained at 4.4% in May. Food and housing were key contributors to the inflation. Core inflation slightly decreased from 2.8% in April to 2.7% in May.
The exchange rate continued to be under pressure in the month. The VND/USD market rate had depreciated by 8% year-on-year as of the end of May 2024.
The average overnight interbank interest rate increased slightly to 4.3% in May, compared to 4% in April, reflecting continued tightening of the liquidity by the State Bank of Vietnam.
While revenue collection continued to improve, public expenditure slowed in the month. State budget collection was 898.4 trillion VND (35.3 billion USD), or 52.8% of the planned revenues, leading to an increase of 14.8% in the first five months of the year as compared to the same time in 2023.
Public spending slowed to about 656.7 trillion VND, equivalent to 31% of the projection and only 0.5% higher than the same period in 2023. Some 148 trillion VND in public investment was disbursed, or 22.3% of the Prime Minister’s approved allocation and 5% higher than the same time last year.
To support consumption, on April 23rd, 2024, the government proposed to extend the VAT discount from June 2024 to end of 2024. To stimulate domestic private investment, the SBV issued a dispatch, asking all credit institutions to try to reduce lending rates by 1-2 percent.
WB experts said while external demand is showing signs of recovery, the performance of domestic demand, especially domestic consumption, is showing mixed signs. The authorities have taken some measures to support the economy./.
