Research Center

Economic activities diverge on a long Tet holiday The Tet holiday released divergent influences on Vietnam's economic activities. On one side, a longer Tet than in 2022 scaled trade and production activities down due to fewer working days. On the other side, domestic consumption was more vibrant when consumers had more time and mobility to enjoy the first fully normalized traditional Tet since the pandemic. Taking the significant reduction in the number of working days into account, it seems that the decline in trade turnover became smaller than the previous month, while industrial production re-accelerated, implying the negative impact of the global slowdown on Vietnam’s economy was likely easing.

Vietnam’s economy decelerated significantly in 4Q22 under growing global uncertainties and the fading low-base effect. Economic growth just reaches 5.92% YoY this quarter when trade activities step into the red territory, and the resultant export-oriented manufacturing keeps decelerating. It is foreseeable that domestic production would slow down further when the global tendency of tightening monetary policy needs more time to pivot. External demand and subsequent new orders to contract manufacturers, including Vietnam, would remain gloomy. On the upside, domestic consumption remains favorable due to the upcoming shopping season, and inflation remains under control, allowing the government to pursue policies for economic growth.

The impact of weak global demand on Vietnam’s economy is highly observable this month when trade activities step into the red territory, and the resultant export-oriented manufacturing keeps decelerating. It is foreseeable that domestic production would slow down further when the global tendency of tightening monetary policy needs more time to pivot. External demand and subsequent new orders to contract manufacturers, including Vietnam, would remain gloomy. On the upside, domestic consumption remains favorable due to the upcoming shopping season, and inflation remains under control, allowing the government to pursue policies for economic growth.

Vietnam’s economic performance in October reflects obviously the impact of global slowdown when the low-base effect was fading. Trade activities and export-oriented industrial production were decelerating under the fewer new orders and weaker external demand. On the upside, domestic consumption remains favorable under the improving labor market, and the inflation remains under control. Furthermore, the rebound in FDI registration is a plus point as it might reflect that foreign investors are regaining the confidence about the business prospect.

Vietnam's economy in 3Q22 recorded the highest growth rate in recent years, demonstrating the successful normalization of economic activities since the fourth quarter of last year. Remarkable recovery in domestic consumption and strong foreign demand contribute primarily to the success of the economic performance this quarter. Furthermore, inflation continues to be under control within the country despite being a global headache. We predict that Vietnam’s economic activities will be less favorable in 4Q22 because the low-base effect is fading and the impact of the global recession is becoming more significant.

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.