Macro Update - First monthly trade deficit recorded in two years

- Production improved further in May. The overall index of industrial production (IIP) continued to grow, gaining 8.9% YoY in May (vs +0.5% YoY in May 2023) with the IIP of manufacturing increasing 10.6% YoY (vs -0.9% YoY in May 2023). In 5M 2024, the overall IIP rose 6.8% YoY (vs -2.0% in 5M 2024), in which the IIP of the manufacturing sector increased 7.3% YoY (vs -2.5% YoY in 5M 2023). The PMI result in May signaled that production and exports could be supported in the coming months by a solid increase in new orders while demand showed signs of sustained growth, in line with the recent strong growth in imports (around 94% of Vietnam’s imports are materials for production).

- Retail sales remained solid supported by strong international arrivals. In May, the total retail sales of goods and services increased 9.5% YoY. In 5M 2024, total retail sales of goods & services grew 8.7% YoY in nominal terms and 5.2% YoY in real terms. Within total retail sales, retail sales of goods increased 7.4% YoY in 5M 2024. Additionally, retail sales of accommodation & catering services surged 15.1% YoY due to the continued rebound in tourism (retail sales of tourism services jumped 45.1% YoY). We expect that the ongoing recovery in international arrivals could continue to support overall retail sales in June. In addition, overall demand, especially travel demand, could rise during the summer season.

- Budget revenue completed over half of the annual plan in 5M 2024. According to the Ministry of Finance (MoF), total State revenue and expenditures amounted to VND898.4tn (USD35.3bn; +14.8% YoY) and VND656.7tn (USD25.8bn; +0.5% YoY), completing 52.8% and 31.0% of the annual plan, respectively. As a result, the State budget posted a fiscal surplus of VND241.7tn (USD9.5bn) in 5M 2024 (vs a surplus of VND116.5tn or USD4.6bn in 5M 2023). In terms of budget expenditures, spending for investment & development completed 21.9% of the annual plan and declined 5.6% YoY to VND148.3tn (USD5.8bn) in 5M 2024 due to the high base in 5M 2023. We expect that the Government will boost public spending towards the year-end. Meanwhile, growth in budget revenue should support the Government to conduct fiscal measures to bolster economic recovery.