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Although the credit growth still outperformed the deposit growth in April, the liquidity pressure in the money market to meet regulatory ratios has eased, mainly attributed to the significant decreases in short-term interbank rates. April also witnessed significant selling pressure in the government bond market amid higher inflationary pressure and foreign government bond yields. We predict that this development of the fixed income market will continue in the next month.

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%.

In March, the liquidity strain in money markets, caused by increasingly widening credit-deposit imbalance, continued to be a dominating force behind a reversal of super-easing interest-rate conditions towards pre-pandemic normal levels. Interbank rates are anchored nearly the ceiling levels, while bond yields continue to suffer increasingly upward pressure in the new-normal conditions. Looking forward, we expect the upward pressure from short-term rates to continue to spread to bond yields in the short-term, medium-term, and long-term. Short-term and medium-term yields may continue to increase sharply with high volatility, while longer-term yields would feel the pressure right behind them.

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.

The early months of 2022 witnessed a big shift in the overall interest rate conditions across the fixed-income markets, including the interbank rates and bond markets, from around record-low levels on the way back to pre-pandemic levels. Although the upward pressure is lasting longer than our expectation, the nature of some of the pressure is characterized as short-lived and is expected to be fading out in the coming months.

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, during a high liquidity demand period, surging interbank rates continued to put upward pressure on fixed-income markets. Developments in the post-Tet period this year are also abnormal with liquidity tension yet to be eased. Looking ahead to February, from our view, tightening liquidity conditions in the banking system, combined with widening mismatch in credit-deposit growth and accelerating economic recovery pace, would put more upward pressure on the government bond yields.

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.

After a severe contraction in 3Q21, Vietnam's economy has successfully backed into the pre-pandemic growth track in the fourth quarter. It is visible that the main growth drivers for 4Q21 are from the manufacturing and export areas when these sectors have a phenomenal run in the reopening phase. Meanwhile, marked recovery in retail sales in the last two months also eases some pressure on the economic growth. These developments lay a strong foundation for the economic outlook in the next year.