Inflation eased to below 3% y-o-y, thanks to lower food and some energy prices. (Source: HSBC) The report said as a country particularly exposed to the global trade cycle,external weakness has dampened Vietnam’s growth. After falling 12% year-on-yearin the first quarter this year, exports continued their double-digit decline,falling 11.7% year-on-year in April.
HSBC said that the weakness continued to be broad-based, with key shipmentssuch as textiles, footwear, smartphones and wooden furniture saw notableslumps. However, the only bright spot in April’s data was computer electronics,rising 5.4% year-on-year. That said, this was a one-off surprise due to baseeffects, rather than a reflection of the tech cycle bottoming out. Whileleading indicators such as PMI showed some initial signs of stabilisation, itwill still take some time until there is a meaningful rebound in the globalelectronics cycle. Vietnam is clearly not alone in this while peers such asTaiwan and Korea also continue to struggle in the current electronics doldrums.
Despite weakness in goods trade, services continue to provide some much-neededsupport. International tourist arrivals moved closer to one million in April,driven by a 70% month-on-month pick-up in Chinese tourists.
The positive recovery is thanks to easing flight constraints and China’sinclusion of Vietnam as a destination for its group tour resumption inmid-March. However, as a major tourist source with 30% share prior to thepandemic, the recovery pace of Chinese tourists remains gradual, reaching only25% of the same period in 2019. For example, Korean tourists, another majorsource, have recovered to 77%.
While tourism can provide some partial support, its recovery will only be aslow process, and will not be enough to offset this year’s challenges. Indeed,growth headwinds can be seen through the lens of extremely sluggish creditgrowth. Despite an annual credit growth target of 14-15% and two moves by theState Bank of Vietnam (SBV) to cut its key interest rates in March, loans onlygrew around 2% by mid-April, half of the growth of the same period in 2022,reflecting ongoing concerns of economic difficulties. As a result, theauthorities have introduced a series of support policies recently, including a 120trillion VND credit package for social housing, a 2 percentage point cut of VATuntil end-2023 and plans to restructure some loans. In particular, there areinitial signs of a relaxation in the policy stance towards the property sector,which has been facing a liquidity crunch since last October.
Despite slowing growth, inflation has been better behaved, offering some reliefto policymakers. Headline inflation fell 0.3% month-on-month, translating intoa benign year-on-year print of sub-3%, moving further away from the SBV’s 4.5%inflation ceiling. For one, food inflation momentum continued to ease, thanksto a decline of 1.6% month-on-month in pork prices (recall pork inflation has asizeable impact on overall food inflation). Meanwhile, energy prices saw amixed picture. While transport costs rose marginally, due to higher oil prices,other energy inflation, such as electricity and gas, fell. That said, cautionis still warranted on the supply-side of inflation. After all, OPEC’s decisionto cut oil production and Vietnam Electricity's (EVN) proposed electricityprice hike had not materialised by mid April.
All in all, Vietnam continues to face challenges in the second quarter 2023after a tough first quarter economic performance. While it will likely see weakgrowth in the first quarter this year, the bank expects the services sector toreceive a punchier boost and the trade tide to turn in the second quarter,lifting whole-year growth to 5.2% in 2023./.
VNA
