Macro Update - Production and external trade remain weak due to global slowdown

- Declines in new orders continued to weigh on production. The overall index of industrial production (IIP) improved 3.6% MoM and 0.5% YoY in April; however, it fell 1.8% YoY in 4M 2023 due to a slowdown in new export orders. Also, the Vietnam Manufacturing Purchasing Manager Index (PMI) dipped to 46.7 in April from 47.7 in March, signaling the fifth deterioration in business conditions in the past six months. Nevertheless, manufacturers expect output to increase throughout the rest of the year despite business confidence in April being the lowest since the beginning of the year.

- Total retail sales continued to expand. Total retail sales of goods & services advanced 3.7% MoM and 11.5% YoY in April. In 4M 2023, total retail sales of goods & services increased 12.8% YoY in nominal terms and 8.3% in real terms. The retail sales growth outlook could remain challenging over the short term as manufacturers have scaled back staffing levels due to reduced new orders. However, a relatively lower interest rate environment and easing inflationary pressure could support consumer confidence. In addition, we expect retail sales of tourism will continue to recovery strongly vs a relatively low base last year — especially with the return of Chinese tourists.

- Public investment surged but continued to lag the annual plan. According to the Ministry of Finance, total State revenue and expenditures in April were VND645.4tn (USD27.5bn; -5.0% YoY) and VND500.3tn (USD21.3bn; 6.1% YoY), completing 39.8% and 24.1% of the annual plan, respectively. As a result, the State budget posted a fiscal surplus of VND145.1tn (USD6.2bn) in 4M 2023 (vs VND175.1tn or USD7.5bn in 4M 2022). Notably, spending for investment & development jumped 15.6% YoY to VND110.6tn (USD4.7bn), but the completion rate only achieved 15.2% of the annual plan due to the 2023 plan being 38% higher than 2022’s plan. Furthermore, the Government ordered a series of actions to push public investment during its monthly meeting at the beginning of May. The Government aims to achieve over 95% of the public investment plan allocated by the Prime Minister in 2023.