Research Center

In May, improved credit activity helped create tightening pressure on the banking system's liquidity, resulted in higher short-term interest-rate conditions in the interbank and G-bond markets. Looking forward to June, under uncertain business conditions unfavorable for credit growth, we expect the pressure on the banking liquidity to be loosened in June. Furthermore, State Treasury short-term deposits, which have launched in early June, would also enhance the liquidity conditions and lower short-term interest rates and yields.

COVID-19 will be a great challenge for Vietnam's economic activity in the near term. IIP and retail sales would be the first to see pandemic-caused disruption, while the mobility restrictions also placed a burden on FDI activity. However, we expect export demand to continue to be life-saving for economic growth in 2Q21, as the U.S. and European consumer confidence remain positive thanks to the accelerating vaccination rollouts.

The macroeconomic conditions in May become less favorable than in April due to the ongoing outbreak and a global shock of surging commodity prices. Stricter mobility restrictions put heavy pressure on FDI and retail sales performance this month. On the other side, surging global commodity prices are considered the main factor in lifting inflation in May. Furthermore, the trade balance recorded the second consecutive deficit, attributable to the rising import price. However, a modest recovery in the industrial sector somewhat lightens the macroeconomic picture under many internal and external uncertainties.

A shortage in banking liquidity caused interbank rates and short-term yields to increase markedly in April. However, this seasonal liquidity shortage during a long holiday combining with SBV signaling control to banking credit activities would make recent increases in short-term rates end soon. Besides, we expect long-term yields to remain around the current levels under a gloomy outlook for CPI.

April provides more evidence for the economic recovery in recent months as major economic indicators improve further. However, we predict the economy to face more challenges in the coming months stemming from an uneven global economic recovery and the new COVID19 resurgence within the country. More prominently, the inflationary pressure is piling up when the upward momentums of construction materials and petroleum products prices see no sign of reverse.

The economic condition continued going more favorable in April as production, trade, and consumption activities recover further compared to the same period last year. Besides, CPI upward pressure became softer this month when the uptrend in world commodity prices become less aggressive. Hence, we indicate that the macroeconomic conditions generally remain stable in this month.

Modest economic growth in 1Q21 put pressure on the target economic growth for full-year 2021. However, there are still some factors bolstering the economy in the next quarter, including COVID-19-devastated low base output in the same period last year, ongoing economic recovery, and promising fiscal spending from the newly-formed government. Also, accelerating vaccination and fiscal reliefs on a global scale add more favors for export activity and export-driven manufacturing in the next quarter.

After experiencing high volatility last month, the money and government-bond markets backed to normalization in March with improved banking liquidity. Interbank rates again stayed at low levels, while long-term yields saw loosening upward pressure. We expect that this trend would be ongoing in April, and interbank rates and G-bond yields would likely move in a tight range.

GSO’s figures show that Vietnam’s real gross domestic product (GDP) sustained its modest growth rate at 4.48%, leaning back on the impressive improvement in taxes-less-subsidies (TLS) and industry and construction (I&C) items. We believe that the Decree 41 tax deferral policy drove the TLS’s to grow notably this period.