Economic update – More supportive measures to come

• Implemented FDI increased by 3.3% yoy to reach US$1.6bn in Apr 2023 while registered capital surged by 80.5% yoy to US$3.4bn.
• Vietnam’s CPI cooled down to 2.8% yoy in Apr, the lowest level in 1 year
• We maintain our GDP growth forecast of 4.5% in 2Q23F and 5.5% in 2023F

Industrial sector hard to recover in Apr 2023
Vietnam’s Industrial Production Index (IIP) increased by 3.6% on a monthly basis and by 0.5% on an annual basis in Apr 2023. April’s index improved slightly from a decline of 1.6% yoy in the previous month, but was still much lower than the growth rate in the normal period (between 7-9% annual growth rate). On the contrary, Vietnam’s Purchasing Managers’ Index (PMI) dropped to 46.7pts in Apr 2023, down from 47.7pts in the previous month. In general, we have not seen clear evidence of a strong recovery in industrial activities in the next few months as Vietnam’s PMI and export orders continue to decline, of which Vietnam’s export on Apr 23 witnessed the strongest decline in the past three months with export turnover declining by 16.2% yoy to US$27.9bn (-6.2% mom).

Vietnam’s CPI cooled down to the lowest level in 1 year
Vietnam’s headline inflation fell to a one-year low of 2.8% yoy in Apr 2023. On a mom basis, Vietnam’s CPI slumped 0.3% in Apr after falling 0.2% in the previous month. On May 4, EVN decided to increase the average retail price of electricity by 3% to VND1,920/kWh (excluding value added tax). According to our estimation, a 3% increase in retail electricity price can directly increase the overall CPI of the economy by 0.1%. We expect Vietnam’s average inflation to increase by 3.5-3.9% yoy in 2023F, below the government’s guidance of 4.5%.

The SBV delivered additional measures to support the economic growth
On Apr 23, 2023, the SBV announced Circular 02/2023 to guide credit institutions to review and reschedule principal/interest payments or maintain debt groups for customers who are (1) facing liquidity problems to run businesses and (2) losing demand for consumer loans. In addition, the SBV also announced Circular 03/0223 allowing the postponement of Article 11 Clause 4 of Circular 16/2021. This means banks are still able to buy back unlisted corporate bonds sold/distributed by them under some specific conditions.

…and may continue to lower its policy rates
In Mar-23, the SBV had two reductions in its policy interest rates, which marks a reversal in the domestic monetary policy. As the risk of a recession in the US economy is increasing, the market expects the FED to pause its rate hike cycle as soon as its next meeting in Jun 2023. In this case, the pressure on VND exchange rate and domestic interest rates will ease further. Therefore, we expect the SBV to cut its policy rates further by at least 50 basis points in the remaining of 2023.

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