Research Center

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strong increase in the credit growth in June, from our perspective, indicated that part of surplus liquidity was being withdrawn from the banking system, which in turn could reverse the current trend.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.

In February 2020, the liquidity in the interbank market was still ample and SBV continued pouring the money away the banking system, via 91-day T-bills, to maintain the overnight interbank rate within the interest rate corridor.

The latest GSO’s estimate shows that the value of export rose by 33.76% YoY, posting USD18.6 bn, while the import value also moves up by 26.08% YoY, recording USD18.5 bn. However, after adjusting the reverse Tet-effect, the export and import values turned to decline by 3.14% YoY and 8.70% YoY, respectively. These figures were likely to indicate that the COVID-19 epidemic already but not fully effected to trade activities in this month.