Research Center

Economic activities accelerated further in 3Q23 mainly thanks to the impressive improvement in export activities and the solid investment from foreign and government sectors. On the upside, it seems the negative impact of external factors on Vietnam's economy has become less severe when the end of the global trajectory of rate hikes was counting down. Export turnover recorded a much softer decline, and FDI disbursement preserved its acceleration. However, domestic consumption continued decelerating due to a slowing recovery in foreign tourism, the lingering hardship of employees in the manufacturing sector, and the limited impact of fiscal measures. For future developments, we expect the export activities to recover and overwhelmingly drive the economy to accelerate in the next quarter.

SBV returned to withdraw money market through its Bill issuances this week, signaling that the central bank navigated its effort partly to stabilize the increasing exchange rate. It is worth noting that counterparties were excited to offerings with high participation (13 participants for each auction session) and relatively low winning yields (0.5-0.6% p.a.). This situation seems to reflect the liquidity excessiveness of the banking system. SBV’s decision likely originates from the upward pressure of USDVND that could endure due to the high import season and the persistent USD-VND rate differentials.

The money market held a silent tone this week, while the volatility in the FX market rose heading to the September FOMC next week. Overnight interbank rates stayed at nearly zero, representing excessive liquidity and slowing lending performance. USDVND renewed its upturn with a significant increase of 0.78% compared to last week. The persistence in negative swap spread and rising demand for import peak season may explain FX movement this week.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) rose to 50.5 in August 2023 from 48.7 in the prior month. This was the first increase in factory activity since February, as output, new orders, and foreign sales all returned to expansion. Overall, the PMI's return to growth in August is a welcome development for the Vietnamese economy. It suggests that the manufacturing sector is recovering and is well-positioned to contribute to the country's economic growth in the coming months.

Interbank rates steadily stay at their lows when more announcements of lowering deposit rates are recorded. Although the aggregate loan balance returned to growth in August, the improvement was modest, partly causing the liquidity condition to be excessive further. In the vein of government support, the postponement of clauses 8, 9, and 10 of Article 8 of Circular No. 39/2016/TT-NHNN became effective in September. We expect SBV’s decision to ease a few requirements for borrowers and improve credit performance for the future months. The FX market is in the spotlight this week when the September FOMC is counting down. USDVND ended seven rallying weeks with a 10bps reduction compared to last week.

Although the aggregate loan balance returned to grow in August, the improvement was modest. Interbank rates remain cheap despite the long holiday, suggesting that the liquidity condition is persistently excessive and government policies in encouraging economic activities need more time to be material. In the vein of government support, the postponement of clauses 8, 9, and 10 of Article 8 of Circular No. 39/2016/TT-NHNN became effective in September. We expect SBV’s decision to ease a few requirements for borrowers and improve credit performance for the future months. In the notable development, USDVND rose further at a softer pace than the previous week primarily due to the prolonged situation of negative swap spread and higher demand for raw materials from importers to the peak season 2-3 months later.

August’s data shows an opposite tendency between internal and external factors. On one hand, the impact of recent fiscal measures, such as the VAT reduction and the increase in the base salary, on consumer confidence seems to be effective. Domestic consumption has renewed its acceleration this month alongside hotter inflation steaming from food and traffic indices. On the other hand, export turnover declined at a more significant pace in August. It is worth noting that the export value of August last year was a historic high, mainly originating from the explosive U.S. and EU consumption after a long period of pandemic. The situation has changed significantly from the peak when retailers and wholesalers fell into overstocking, resulting in fewer new orders to manufacturing hubs, including Vietnam. Hence, we believe that it will take more time for Vietnam’s economy to rely its growth engine on external factors.

Interest rates in the money market continued sticking to their lows this week due to the minimal improvement in the first lending market. However, in alignment with the government’s call for economic re-acceleration, SBV this week issued Circular No. 10/2023/TT-NHNN on suspending the effectiveness of restrictive measures, mentioned in clauses 8, 9, and 10 of Article 8 of Circular No. 39/2016/TT-NHNN, to facilitate lending to the private sector. We expect SBV’s decision to ease a few requirements for borrowers and improve credit performance for the next months. In the notable development, USDVND rose by 0.80% compared to last week, possibly due to higher demand for forward contracts and a stronger DXY following the speech of the Fed’s chairman.

U.S July Retail sales and Vietnam T&G exports According to the latest data from the U.S. Census Bureau, retail sales in the U.S. increased by 0.7% MoM in July of 2023, marking a fourth consecutive rise, and beating market forecasts of a 0.4% increase. In more detail, US clothing store sales grew 1.34% YoY in July, slightly decelerated from 2.69% in June, but remain higher than the one-year slowest growth of 0.32% in April. The potential upturn in US clothing sales, given a relatively strong correlation with Vietnam T&G exports, subsequently benefiting this export sector in the latter half of 2023.