Research Center

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.

Short-term funding costs return cheaper following SBV’s tightening of credit quality. Accordingly, the selling pressure of government bonds on the secondary market has eased. However, we predict that the cheap short-term cost situation was temporary under potential growth in the first lending market.

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.

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.