Economic update – Things gradually falling into place

• Service sector softly recovered in Oct with gross retail sales of consumer goods and services rose 18.1% mom
• PMI climbed above 50 point for the 1st time since Jun 2021, indicating the resume of manufacturing activities in Oct 2021
• Vietnam’s Oct headline inflation slumped further to 1.8% yoy, the lowest since Mar 2021
• We lower FY21F GDP growth rate to 2.0% yoy in baseline scenario

The economy experienced steady recovery in Oct

On month-on-month basis, the service sector witnessed softly recovery with gross retail sales of consumer goods and services increasing 18.1% mom (-19.5% yoy). Regarding the industrial sector, the IHS Markit Purchasing Managers’ Index (PMI) of Vietnam in Oct 2021 stood above 50 for the 1st time since Jun 2021, indicating the recovery of industrial activities since Oct 2021. Also, Vietnam’s Oct Index of Industrial Production (IIP) rose 6.9% mom (-1.6% yoy), increasing from a growth rate of 5.0% mom (-5.5% yoy) seen in previous month.

Vietnam recorded higher trade surplus in Oct

Per GSO data, export value edged up 1.1% mom (+0.3% yoy) to about US$27.3bn in Oct 2021. As for imports, Vietnam’s import spending dropped 1.1% mom (vs. a 3.6% mom decline in Sep 2021) to about US$26.2bn (+8.0% yoy). As a result, Vietnam increased net exports to US$1.1bn in Oct 2021 from a net export of US$0.5bn in the previous month.

More stimulus packages are expected on the arrival

There is still room for more fiscal policy, in our view, following (1) Vietnam’s public debt-to-GDP ratio at year-end of 2020 is much lower than Vietnam’s public debt ceiling of 60% of GDP, (2) government bond interest rates are at historic lows and (3) inflation is well-managed. The fiscal stimulus packages could include: cash subsidies for people negative-affected by the COVID-19 pandemic, tax reduction (value added tax, corporate income tax) and increase value amount of public investment in transport infrastructure and social-housing projects development.

We cut our 2021F GDP growth forecast to 2.0% yoy

Some bottlenecks that could hinder the recovery of the economy are still exist, including (1) domestic consumption demand stays low in the 4Q21 due to lower consumer’s income amid the prolonged pandemic and (2) many industrial parks in Southern provinces still face labor shortages. In addition, the number of daily new cases have bounced back strongly since late-Oct amid the reopening of the economy. The risk of a resurgence of COVID-19 pandemic could halt the reopening of the economy. As uncertainties emerge, we revise our forecast for 4Q21 GDP growth to 3.3% from a previous forecast of 4.0%.

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