The World Bank releases a report on Vietnam's macroeconomic performance in the first quarter of 2023

The World Bank recently released the latest macroeconomic monitoring report for Vietnam, stating that Vietnam's GDP growth slowed to 3.3% in the first quarter, the second lowest growth rate in the first quarter in nearly a decade. This was mainly due to a sharp 11.8% drop in exports and a 0.4% drop in industrial output due to reduced international demand; During the same period, the agricultural growth rate was 2.5%; Thanks to strong domestic demand and the return of international tourists, the service industry grew by 6.8% and was the main contributor to economic growth in the first quarter.

The report first analyzes various macroeconomic indicators in Vietnam. Firstly, the industrial production index was 1.6%, which decreased slightly year-on-year. However, there was an improvement in March, with a month on month increase of 9.4%. Most sub sectors, especially mining, textiles, metal manufacturing, and transportation vehicle manufacturing, have achieved month on month growth. Electronics and furniture manufacturing are exceptions, with year-on-year decreases of 13% and 21.7% respectively, reflecting a 42%, 11%, and 22.8% decrease in exports of smartphones, computers, and other electronic products, as well as furniture. After the Purchasing Managers'Index reached 51.2 in February, it fell back to 47.7 again in March. The prospects for the recovery of the manufacturing industry are still uncertain.

Secondly, the retail industry has maintained a strong momentum, with a month on month and year-on-year growth rate of 1.9% and 13.4% respectively for goods and services, achieving double-digit year-on-year growth for 13 consecutive months. The growth of product sales is stable, with a year-on-year growth rate of 11.3% in March. During the same period, services accounting for 20% of total retail sales showed a significant increase, with accommodation and catering increasing by 25.5% year-on-year and tourism services increasing by 113.9% year-on-year. The number of international tourists has reached 2.7 million.

The third is to maintain a stable operation of the labor market. The unemployment rate in the first quarter remained unchanged from the fourth quarter of 2022, at 2.3%, slightly higher than the 2.1% before the epidemic. The underemployment rate dropped slightly from 2.0% in the fourth quarter of 2022 to 1.9%, but still higher than the pre epidemic 1.2%. The labor force participation rate has slightly increased to 68.1%, but it is still lower than the 71.3% before the epidemic. Although the overall employment level in the country increased by 2.2% year-on-year, several large manufacturing centers, such as Ho Chi Minh City, Toughton, Pingfu, Beining, Beijiang, Taiyuan, etc., saw a decline in employment levels, ranging from 0.4% to 5.5%, reflecting a slowdown in the manufacturing industry over the past two quarters.

Fourthly, both import and export of goods trade have decreased. In the first quarter, exports and imports of goods decreased by 11.8% and 14.6% year-on-year, respectively. Among them, the decrease in exports was mainly due to two major categories of products: computers, telephones, electronic products, and machinery (a decrease of about 14.3%), as well as textiles, clothing, and footwear products (a decrease of about 18%). Driven by this, the import of mobile phones, computers, electronics, and mechanical products decreased by 23% year-on-year, highlighting the serious dependence of high-tech products exported by Vietnam on imported raw materials; Cotton, yarn, fabrics, and footwear imports contracted by 21% year-on-year. However, in March, Vietnam's foreign trade showed signs of improvement, with exports and imports increasing by 13.5% and 24.4% month on month, respectively. The trade surplus reached $650 million, a decrease from $2.8 billion in February.

Fifth, although service trade is still in deficit, it is continuously improving with the recovery of service exports. The service trade deficit in the first quarter decreased month on month and gradually returned to pre pandemic levels. This is mainly due to the recovery of service trade exports, reflecting the strong growth of international tourists. Overseas tourists contributed $2.7 billion in revenue to service trade exports, a year-on-year increase of 250%. On the other hand, due to the slowdown in trade activities, imports of transportation and insurance services have decreased by approximately 14%.

Sixth, the volume of foreign direct investment agreements continues to show a downward trend. In the first quarter, the volume of foreign direct investment agreements in Vietnam decreased for the fifth consecutive quarter, with a year-on-year decrease of 40%, reflecting the highly uncertain global economic outlook and the tightening monetary environment in developed economies to control inflation. The actual arrival of foreign direct investment has slowed down, a 38% decrease compared to the previous quarter. Manufacturing and real estate are still key sectors in attracting foreign investment, accounting for approximately 80% of the total agreement amount in the first quarter.

Seventh, the overall inflation rate and core inflation rate continue to moderate. From March 2022 to January 2023, the overall inflation rate and core inflation rate showed a continuous upward trend, but have slowed down since February. The increase of consumer price index index (CPI) fell from 4.9% in January to 4.3% in February and 3.4% in March, and the core inflation rate fell slightly from 5.2% to 5.0% in February and 4.9% in March. The main driving factor for inflation is the rise in prices of food, housing, and building materials. In March, transportation service prices decreased by 4.9% year-on-year. Since the relative stability of international oil prices in October 2022, the impact of transportation on inflation has been minimal. The Producer Price Index (PPI) of the industrial and agricultural sectors decreased from 2.8% and 6.5% in the fourth quarter of 2022 to 1.1% and 5.0%, respectively. Among them, the decline in PPI in the industrial sector is mainly related to the decline in commodity prices, especially fuel prices.

Eighth, although the domestic financial environment is more relaxed, the credit growth rate still shows a decline. The credit growth rate in the first quarter slowed from 14.17% in the fourth quarter of 2022 to 9.5%, dropping to the lowest level since 2020. The decline in growth rate reflects the slowdown in Vietnam's economic activity, especially in the industrial and real estate industries, as well as a high interest rate environment. To stimulate the economy, the National Bank of Vietnam has lowered its policy interest rate by 100 basis points starting from mid March 2023 and further lowered it by 50 basis points at the end of the month. The rediscount and overnight loan interest rates were correspondingly reduced from 4.5% and 7.0% to 3.5% and 6.0%, respectively. The refinancing rate will be reduced by 50 basis points from 6.0% to 5.5%. The deposit and loan interest rates of various commercial banks have been adjusted downwards accordingly, making the financial environment more relaxed.

Nine is to maintain a surplus in fiscal revenue and expenditure. The total fiscal revenue in the first quarter increased by 1.3% year-on-year, and the nominal total expenditure increased by 7.2%. In the first quarter, the Vietnamese government's fiscal revenue was 491.5 trillion Vietnamese dong, accounting for 30.3% of the total planned revenue; The fiscal expenditure is 363.4 trillion Vietnamese dong, accounting for 17.5% of the plan.

The report suggests that the Vietnamese government should closely monitor the slowdown in growth caused by the sharp contraction in manufacturing exports. If external and domestic demand continues to weaken, the government should consider increasing total demand by accelerating public investment expenditures. The increase in electricity bills and public sector salaries in the coming months will increase inflationary pressure. Further tightening of monetary policy in the United States may affect exchange rate management, especially as the National Bank of Vietnam has just lowered policy interest rates to stimulate economic growth. Given the continued uncertainty in the global financial market and the slowdown in the domestic economy, close supervision of the financial sector is crucial, especially in regulating real estate lending, which accounts for 20% of the financial sector.