Research Center

Sluggishness in banking lending activity excites participants in the money and G-bond markets due to high uncertainties in the business conditions. As a result, interbank rates and bond yields continued to stay low along with increasing trading activities. We predict that the situation will continue to happen in the next month until the first lending market picking up.

We saw that economic recovery was losing its momentum in July 2020 in some aspects. Trade activity slowed down as our most import trading market as the U.S faced tough in controlling the pandemic. Other indicators, including CPI, IIP, FDI, also decelerated to some extent. We argue that the virus containment in the U.S will take time, and the Da Nang outbreak will likely hurt our production. Hence, we predict economic indicators to decrease modestly in August 2020.

Under tremendous hardship, the Vietnam economy saw a recession-like slowdown in 2Q20. But, at least there is a light to the end of the tunnel as the latest update of most macroeconomic indicators bring hopes in 3Q20 economic outlook. “The strong will get stronger” as we expect solid-growth sectors will be key factors pushing up the economy in 3Q20.

The fixed-income securities markets currently are overflowing with excess liquidity as short-term government bond yields and interbank rates find their record lows. However, a strong increase in the credit growth in June, from our perspective, indicated that part of surplus liquidity was being withdrawn from the banking system, which in turn could reverse the current trend.

May’s data recorded a recovery in some macroeconomic indicators as both CPI and IIP bounced back markedly after hitting their lowest levels in April. On the opposite, related-external factors, such as FDI and trade, were yet to improve as data in those areas continued to decline further. However, some new positive signs are emerging lately as data for PMI and the consumer confidence indices from some advanced economies, such as the U.S., Japan, and South Korea, are losing downward momentum. From our perspective, the timing for Vietnam's economy to pick up again will depend on the post-crisis recovery in the economies of our major partners, likely in the next couple of months.

We see an easing path of monetary policy as SBV not only pauses the liquidity withdrawal in the open market but also lowers short-term rates in several funding markets, according to the Decision 418/QĐ-NHNN 2020. Short-term interbank rates reacted quickly to this decision when dropping to near all-time low levels, while short-term bond yields also fell off after the rate-cut signal.

The economic impact of the pandemic becomes more visible in April. Amidst the health crisis, consumers are not willing to spend as much as before, while producers also are not ready to boost production. Thus, trade turned negative, CPI extended the downward momentum, and the industrial production hit an all-time low. Nevertheless, we expect that the economic setback will be less severe as the global wave of re-opening will gradually take place in May.

From our viewpoint, SBV’s intervention of withdrawing liquidity out of the banking system in early April was considered a temporary liquidity adjustment rather than a long-term tightening monetary stance. On the other side, G-bond yields were back to its downward momentum in the month, showing market participants are fleeing to safe-haven assets amid the economic turmoil due to the COVID-19 pandemic.

In 1Q20, our data shows prominent evidence that the COVID-19 has put the economy into the stagnation phase. The GDP growth was under the consensus expectation, while inflation and trade activities also lost their upward momentum. FDI reflected a pessimistic sentiment of global investors not only in Vietnam but also around the world. We estimate that economic activities will keep shrinking in this quarter until the pandemic is under control.