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The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. The CPI is widely used by financial market participants to gauge inflation and by the Federal Reserve to calibrate its monetary policy. Businesses and consumers also use the CPI to make informed economic decisions. Since CPI measures the change in consumers' purchasing power, it is often a key factor in pay negotiations.

The economic picture in August remained bright when the recovery in domestic consumption was still taking place. Besides, CPI remained stable amid a steady recovery of domestic consumption was a plus. On the downside, external factors raise concerns about the growth engine for the mid-term under the high global uncertainties. Although trade performance remained favorable due to persistently high new orders in the recent month, FDI registration has lowered significantly under the weakening purchasing power around the globe.

July's figures show a more visible effect of the global slowdown on Vietnam's economy, especially in trade and production. Export turnover and industrial manufacture of export-oriented products have been hit by the output reduction from smartphone giants as a response to weaker demand concerns. However, domestic consumption continues recovering impressively and could be a shield for the economic growth in 3Q22.

Economic indicators in June showed a robust recovery of Vietnam’s economy thanks to favorable external and recovering domestic demands. Economic growth in the second quarter was unexpectedly high with impressive performances of both export-oriented manufacturing and services sectors. Furthermore, inflation was still under control in the context of rising global commodity prices. We expect that recovering domestic demand, backing by the pent-up demand, fiscal support, and the promising spending from foreign visitors, would be a foundation for the economic acceleration in the next quarter.

Although trade activities experience a slowdown under the struggling global supply chain, May’s figures show that economic recovery remains solid with impressive growth in domestic consumption. We forecast that domestic demand, backing by the pent-up demand, fiscal support, and promising spending from foreign visitors, could be a key factor in economic growth in the next couple of months. On the downside, registered FDI hit a new low this year, raising concerns about fewer investment opportunities in a time of global monetary policy divergence and geopolitical uncertainty.

Economic figures in April suggest a bright picture for the economic acceleration in the second quarter when the growth of many economic activities returns to pre-pandemic levels. Export strengthens its upward momentum with impressive growths of electronics products thanks to the high external demand. Therefore, the domestic production recorded a growth rate at a near double-digit level with the impressive performance from the export-oriented industries group. Regarding the domestic demand, the growth rate of retail sales returned to the double-digit level, mainly reflecting more optimistic domestic consumers under the fading fear of COVID-19 and the re-opening to foreign visitors. On the downside, although CPI kept higher, speed has slowed and was under the government’s target of 4%.

The economic growth continued to strengthen at a broad base in 1Q22 thanks to strong performance in key export sectors and export-oriented manufacturing industries. Furthermore, the services sector also started picking up in the early full-reopening of services activities, while the FDI sector was significantly benefiting from the normalization. Another spotlight is that inflation remained well-controlled in 1Q22 even under surging global commodities prices. These developments build a strong foundation for a resilient recovery in 2022.

Vietnam's economy continues to be on a growth track during the reopening progress with trade and manufacturing sectors remaining the main growth drivers. What worries us for now is the uneven economic recovery as domestic consumption is in weakness after months since the reopening, which is less than our expectation.

In January 2022, long-holiday effects caused economic recovery to temporarily slow down from the impressive recovery since 4Q21. Export activity decelerated from a record high last month, especially in highly FDI-concentrated areas. The seasonality also impacted labor-intensive industries in the industrial sector, limiting its high-growth momentum in the previous period. However, those seasonal effects are only short-lived, and the economy is expected to return to a high-growth track in the upcoming months.

The impressive rebound of Vietnam’s economy in 4Q21 creates momentum for further economic recovery in 2022. We expect the following sectors to be key growth pillars for the economy: (1) robust and stable industrial growth thanks to secured production activity and increased export demand; (2) pent-up demand in domestic spending in the reopening phase; (3) strong recovery in capital investment, primarily driven by investment demand from government and FDI. Last but not least, the upcoming fiscal - monetary support program will further push the economy back to the high-growth track in 2022.