Vietnam’s economic recovery is gaining momentum

Vietnam’s industrial production index grew by 9.4 percent (y/y) in April, comparable to pre-pandemic rates. The manufacturing of apparel, footwear, electronics, electrical equipment, and metal products were the most dynamic sub-sectors, registering double-digit growth rates. However, machinery manufacturing slowed from 26.6 percent year on year in March to 5.1 percent year on year in April.This deceleration was related to supply chain disruptions caused by lockdowns in China, which led to a sharp fall in machinery imports from this market in the last two months. The manufacturing PMI stood at 51.7 in April, the same as in March, marking a seven-month expanding streak.

Meanwhile, retail sales increased from 10.4 percent year on year in March to 12.1 percent year on year in April, as firming domestic demand was boosted further by increased spending during two long national holidays and the return of foreign tourists.Except for the abnormally high growth in April 2021 due mostly to a low-base effect, this is the first time that retail sales have closed in on their pre-pandemic growth rates. This outstanding performance reflected both robust growth in goods sales (up 12.4 percent year on year) and a strong rebound in consumer services, which grew 11.0 percent year on year in April, nearly doubling their growth rate in March.The consumer services recovery has been fueled by strong sales of lodging and catering services (up 14.8% year on year).

Vietnam's trade balance in April 2022

Merchandise exports increased from 17.0 percent year on year in March to 25.2 percent year on year in April, while import growth increased from 14.6 percent year on year to 16.5 percent year on year.Export performance was relatively broad-based across major products and markets. Imports grew more slowly than exports, largely reflecting the slowdown in imports from China caused by lockdowns to contain the recent surge in COVID-19 infections.

In April, FDI commitments totaled $1.9 billion, a 12.6 percent decrease from the previous year. Given the impact of the war in Ukraine and tightening global financial conditions, heightened global uncertainty may have made investors more prudent. M&A activity slowed for the first time in seven months in April, with the value of capital contributions and equity purchases falling by 35% year on year.Across sectors, FDI commitment decreased in manufacturing (30.4 percent year on year) and real estate (33.9 percent year on year), but increased in wholesale and retail (36.0 percent year on year).In contrast to falling commitment, approved FDI project disbursement increased for the fifth month in a row in April (up 7.1 percent year on year).

In April, FDI commitments in Vietnam totaled $1.9 billion, a 12.6 percent decrease from the previous year.

It should be noted that Consumer Price Index (CPI) inflation increased from 2.4 percent (y/y) in March to 2.6 percent (y/y) in April.CPI inflation, which excludes food, energy, and items whose prices are administered by the government, also rose from 1.1 percent (y/y) in March to 1.5 percent (y/y) in April, the highest rate since December 2020.

The WB said Vietnam’s economic recovery is gaining momentum despite heightened global uncertainty related to the protracted war in Ukraine, higher commodity prices, and tightening global financial conditions. Nevertheless, the authorities should be vigilant about inflation and the risks of continued strong exports. Both food and core inflation have continued to tick up, warranting close monitoring.

"If inflation persists in the medium term, the economy should be allowed to adjust to higher prices with the authorities providing incentives for investments to increase productivity and aggregate supply. Supply chain disruptions may continue to raise import prices and worsen the terms of trade, which already deteriorated significantly in the first quarter of 2022. The United States, the European Union, and China, the three largest trade partners of Vietnam, are expected to experience slower-thananticipated growth in 2022, potentially affecting the country’s export prospects", WB said.

Given that China is Vietnam’s second largest export market and biggest source of imports, in WB’s view, the full impact of lockdowns in China on Vietnam’s manufacturing and exports will be felt in the coming months. This suggests that diversifying trade partners would be a prudent strategic consideration to mitigate risks and ensure continued export growth.