Domestic consumption extends Vietnam's economic recovery

Sat, 13 Aug 2022 22:37:00  |  Print  |  Email   Share:

The service sector was strengthened in July by a pickup in domestic tourism and domestic consumption, which helped the economy recover.

Gross retail sales of consumer products and services rose to VND485,984bn in July, up 2.4% from the previous month. Photo: Quoc Tuan

Gross retail sales of consumer products and services rose to VND485,984bn in July, up 2.4% from the previous month and 42.6% from the same time last year, according to the General Statistics Office (GSO). It should be noted that this extremely high annual growth rate results from a low base in July 2021, when Vietnam implemented social segregation policies in many areas to stop the COVID-19 outbreak.

In contrast to a fall of 0.1% in 7M21, gross retail sales of consumer goods and services increased 16.0% year over year for 7M22, the fastest annual growth rate in the previous 7 years. When the price effect is taken out, this indicator increased by 11.9% year over year (compared to a 1.8% yoy decline in the same period in 7M21).

Particularly, in July 2022, the entire service sector advanced. First off, the travel agency reported a staggering increase in revenue from the previous year of VND3.2 trillion (24.2% mom, 3,451% yoy). Additionally, in July 2022, revenue from lodging and catering increased by 5.2% mum to VND53.9 trillion (134.7% yoy). Additionally, while other service revenue gained 2.7% mom to VND47.4 trillion (107.6% yoy), retail sales only grew 1.8% mom to VND381.5 trillion (29.4% yoy).

According to Vietnam's Index of Industrial Production (IIP) in July 2022, the industrial sector grew in July despite supply chain problems and weakening international demand. The general IIP increased 1.6% mom and 11.2% yoy specifically (as opposed to 1.0% mom and 11.5% yoy in the previous month). In terms of sub-sector, the manufacturing sub-robust sector's increase, with a growth rate of 12.8% yoy (2.6% mom), was the highlight of July. It was much better than the previous month's yearly growth rate of 9.9% yoy.

Other sub-sector improvements included increases in waste and wastewater management and treatment of 9.2% yoy (3.6% mom), electricity production and distribution of 8.7% yoy (0.1% mom), and mining of 11.2% yoy (1.6% mom).

However, due to a slowdown in external orders amid a sluggish global economic growth, Mr. Dinh Xuan Hinh, analyst at VNDirect, anticipates that the growth rate of the industrial sector would decrease in the upcoming months, particularly in the fourth quarter of 2022. Vietnam's PMI dropped from a high of 54.0 points in June 2022 to 51.2 points in July 2022, although it is still over 50 points (production expansion). Vietnam's manufacturing sector will face a number of difficulties in 2022, according to IHS Markit, the company that produces the PMI Index for Vietnam. These difficulties include lower consumer demand in Vietnam's main export markets (the US, Europe, etc.), high input material costs, and difficult transportation.

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Additionally, new orders for some export items, such as wood products, iron and steel products, clinker, cement, and furniture made of non-wood materials, are slowing down, according to export data.

"We anticipate a slowdown in Vietnam's export growth in July. The export value decreased by 7.7% mom (8.9% yoy) to around US$30.3 billion in July 2022, according to GSO. Vietnam's export value increased to US$216.4 billion for 7M22 (16.1% yoy)”, said Mr. Dinh Xuan Hinh.

According to Mr. Dinh Xuan Hinh, the tighter global financial circumstances and the disruption of the supply chain could stifle global economic growth hopes and weaken demand for Vietnam's exports in 2H22. The world's largest economy, the US, saw its GDP decline by 0.9% in 2Q22, the second consecutive quarter, reflecting the slowing of global economic growth. Other significant trading partners of Vietnam, including China and Europe, are expected to see weak economic development in 2022. As a result, for 2022F, the majority of research organizations have cut their predictions for global economic growth by 0.5-0.9% points. As a result, we anticipate that export growth will moderate in 2022's second half and end up at 14% overall.

In terms of imports, Vietnam spent $30.3 billion USD (-6.0% mum, 3.4% yoy) on imports in July. In the upcoming months, a decrease in import activity may indicate a downturn in industrial production.

Petroleum products (109.6% yoy), fishery (71.6% yoy), coal (67.6% yoy), glass and glass products (56.8% yoy), and other basic metals ( 29.1% yoy) were among the imports to Vietnam that saw the fastest growth rates in 7M22. Contrarily, the import turnover of commodities such as iron and steel scrap (-66.2% yoy), iron & steel (-9.1% yoy), phones of all types and their parts (-8.4% yoy), and machinery and instruments (-9.1% yoy) decreased in July.

In July, Vietnam's trade balance showed a surplus of US$21 million. Vietnam's trade surplus for 7M22 was US$0.8 billion, an improvement above the US$3.3 billion trade deficit for 7M21. Mr. Dinh Xuan Hinh predicts that Vietnam's trade balance would increase from last year's trade surplus of US$3.3 billion to US$7.2 billion for the entire 2022 calendar year.

By: Business Forum Magazine



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