After suffering from restrictive measures against COVID-19 in April, the Vietnamese economy is showing signs of recovering in May, with the index of industrial production (IPP) rising by 11% compared to the previous month.

The Vietnamese economy is hopefully getting back on track following
the easing of the restrictive measures against COVID-19 (Photo:internet) 

Though the figure was about 3% lower than the level recorded last year, the positive signal shows the Southeast Asian economy is picking up from negative effects of the novel coronavirus epidemic, the World Bank said in its June update.

According to the report, retail sales also bounced back significantly in May. Both passenger and cargo transportation activities rose by 116% and 32% respectively following the easing of domestic travel restrictions that started on April 23.

Vietnam’s merchandise export value increased by about 5% between April and May, but was 5.5% lower than a year ago due to weaker external demand and some possible disruptions of global supply chains. Its key labor-intensive exports such as garment and footwear decreased by 14% and 5% (y/y) while technology exports, such as smart phone, declined by 9% (y/y).

In May, imports fell by nearly 6% (y/y) reflecting lower oil prices and slowdown in demand for foreign inputs by domestic firms.

Foreign Direct Investment (FDI) continued to flow into Vietnam during May but at a slower pace than reported in April. In the first five months of 2020, the total value of committed FDI amounted to US$13.9 billion, a significant figure but equivalent to a year-on-year decrease of 17%.

However, the World Bank states that the Vietnamese economy is far from complete recovery.  

The monthly headline consumer price index (CPI) was flat in May, bringing the year-on-year inflation rate to only 2.4%, down from 2.9% in April and 6.4% in January 2020. Lower prices are mainly associated to the softening of the domestic demand for food and the record low oil price on international markets that was transmitted to domestic fuel and gasoline prices.

Total revenue collected by the Government during the first four months declined by 5.9% compared to the same period last year. The biggest declines were recorded for the value-added tax and corporate income tax, down by 9.3% and 7.3% respectively.

Overall, the bank says the economy has reacted quickly to the easing of domestic restrictions by recording a 10% increase in manufacturing and retails sales during May.

Yet, the level of economic activities remains distant from pre-COVID period. The foreign sector has started to get hurt by weaker global demand. Meanwhile, the Government has continued to use monetary and fiscal policies to compensate for the financial impact of the coronavirus crisis, leading to the fast expansion of domestic banking credit and a severe fall in public revenue.

The expected release of quarterly GDP figures in early July will help better monitor Vietnam economic trajectory but, regardless of these figures, greater attention should be on the potential impact of the rapid monetary expansion on inflation and the deepening of the fiscal deficit caused by underperforming tax collection.