The manufacturing sector shows robust recovery and acceleration, contributing to a projected GDP growth of 6% in Q4/2023. Industrial production growth has increased for the 14th consecutive month, with a year-on-year increase of 5.8% in November (excluding February). Manufacturing (6.3% compared to 4.5% in October) and electricity & gas (9.2% compared to 7.4% in October) are the main drivers of annual growth.

Monthly momentum tends to slow down in November and December. Seasonal production increases in October may reflect events like Black Friday and the world's largest online shopping festival on Singles' Day (11/11), as well as pre-holiday order fulfillment.

Vietnam's economic data shows a significant monthly growth in production output (3.9%), considerably higher than the same period last year (0.1%), although lower than the 6% rate in 2021.

There is differentiation in growth among exported products. Leading the growth are computers and electronics (despite some reduced shipments), followed by phones and components, machinery, and equipment. Notably, seafood exports (1.4%) experienced growth for the first time since October 2022. Conversely, textile and garment (-11.1%) and footwear (-6.4%) continue to contract. The textile and garment export sector may face increased competition from lower-cost exporting countries like Bangladesh and Myanmar. In contrast, electronic exports may benefit from supply chain shifts, enhancing production capacity.

China remains the top export destination in the month, followed by the United States. Export to China reached its highest level in 5 months. Exports to South Korea (6.1%) have seen the third consecutive monthly growth, while exports to Japan, ASEAN, and the EU remain in the red.

Slow Disbursement of Investments, Strong FDI Growth

The trade balance (1.28 billion USD) decreased to the lowest level in 8 months, with imports increasing by 5.1% from the previous year. Foreign Direct Investment (FDI) shows robust growth, with FDI realized from January to November increasing by 2.9% compared to the previous year, reaching 20.3 billion USD, the highest in 5 years. FDI registration increased by 14.8% YoY in the first 11 months. However, experts forecast a potential cooling of foreign investment next year due to the application of a minimum 15% corporate tax rate starting January 1 of the following year.

Domestic investment has grown significantly by 19.9% in November compared to the previous year (compared to 19.9% last year and 20.7% in October). The current implementation rate has increased by 22.1% but remains low compared to the government's annual plan (75% of the annual target). Insufficient planning and coordination among ministries, localities, as well as legal ambiguity, have been long-standing issues slowing down public investment disbursement.

Retail and Consumer Dynamics are Modest

Retail dynamics indicate a gradual decline, with a fading number of customers. Retail sales (10% compared to 7% in October) experienced the fastest growth since May, but the month-on-month growth decreased to 1.4% compared to the adjusted increase of 3.2% in October.

Experts note that there are still favorable winds for reopening in the tourism sector (71%), hotels and F&B (18%), with double-digit growth compared to the previous year. However, tourism-related consumption decreased by -5.5% compared to the previous month, while accommodation and dining services (1.5%) and goods (1.4%) showed modest growth.

The number of foreign visitors (1.23 million in November) increased by 11%, reaching a post-pandemic high, mainly driven by Chinese and ASEAN tourists. As part of the pre-pandemic level, tourist numbers have reduced. The demand for tourism from China is still subdued at 30% compared to November 2019. Observers believe that limit   ed travel options and the low quality reputation of "zero-dong tours" have turned tourists away from Vietnam.

Inflation Eases

Inflation decreased in November, with overall inflation dropping to 3.45% in November (compared to 3.6% in October), while the index increased by 0.24% MoM (compared to 0.08% in October). Core inflation (3.2% compared to 3.4% in October) continues to show a decreasing trend, reaching the lowest level since August 2022.

Lower inflation is driven by housing, construction materials, and transportation, offsetting higher food and health costs. Housing and construction (5.9% compared to 6.9% in October) monthly increased less at 0.05% (compared to 0.3% in October) due to a lower increase in electricity prices in cool weather. Electricity costs are calculated based on consumer usage from the previous month and are expected to increase significantly next month with a 4.5% increase by the Vietnam Electricity Group (EVN) since November 9.

Transportation inflation decreased to 1.6% (compared to 3.9% in October) with unchanged prices, as lower fuel and car prices compensated for the increase in public transportation costs.

Forecast for 2023 CPI and 2024 Headline Inflation

Experts slightly revise down the CPI forecast for 2023 to 3.3% (from 3.4%), following lower-than-expected inflation in Q4. Energy costs have increased less than feared, and oil prices continue to decline despite the Israel-Hamas conflict.

Headlinel inflation is forecasted at 3.5% in 2024, gradually supported by increasing consumer spending, the end of traffic inflation, and electricity price hikes. It is still controlled by a 2% VAT reduction (as recently passed, extended until June 2024).

GDP Growth Forecast and Interest Rate Policy for 2024

The expert group maintains the GDP forecast at 4.8% in 2023, with an expected Q4 growth of around 6%. They anticipate a more robust growth of 5.8% in 2024. The recovery will be led by improving exports and supported by fiscal and monetary policies.

However, the real estate sector will experience a slow recovery due to high debt burdens and a sluggish real estate market, reducing domestic demand.

The expert group expects the State Bank of Vietnam (NHNN) to keep the operational interest rate unchanged in 2024 because adjusting or further reducing the policy rate is unnecessary given the ongoing economic recovery. NHNN is likely to maintain the interest rate to support growth amid controlled inflation and restrained foreign exchange pressures.