Macro Update - Production improves in July
  • 2023-08-07T00:00:00
  • Macroeconomics

- Production improved in July; PMI hit highest level in five months. The overall index of industrial production (IIP) increased 3.9% MoM and 3.7% YoY in July — the highest growth over the past five months. However, 7M 2023 overall IIP slid 0.7% YoY as weak export demand in H1 2023 dragged production. The manufacturing sector also improved 4.2% MoM and 3.6% YoY as most subsectors experienced growth, but the IIP of the manufacturing sector fell 1.1% in 7M 2023. According to S&P Global, the Vietnam Manufacturing Purchasing Manager Index (PMI) was 48.7 in July, which was the highest level over the past five months. We expect to see an uptick in production and exports in August as Samsung’s new series of mobile phones is scheduled to be released. 

- International inbound tourists continued to support retail sales. Total retail sales of goods & services rose 1.1% MoM and 7.1% YoY in July. In 7M 2023, total retail sales of goods & services increased 10.4% YoY (9.6% in real terms), in which retail sales of the accommodation & catering services and tourism sectors surged 16.3% YoY and 53.6% YoY, respectively. The ongoing recovery of the tourism sector could help to enhance retail sales. Furthermore, the recent 2% VAT cut and the increase in the statutory base rate for officials and public employees’ salaries (from VND1.49mn to VND1.8mn per month), effective from July 2023, could help to support purchasing power.

- Public investment continued to accelerate. According to the Ministry of Finance, total State revenue and expenditures increased to VND1,016.1tn (USD43.2bn; -7.8% YoY) and VND957.0tn (USD40.7bn; +13.7% YoY) in 7M 2023, fulfilling 62.7% and 46.1% of the annual plan, respectively, and resulting in a fiscal surplus of VND59.1tn (USD2.5bn) vs VND250.8tn (USD10.7bn) in 7M 2022. Notably, in terms of budget expenditures, spending for investment & development surged 43.2% YoY to VND267.6tn (USD11.4bn) — equivalent to around 36.8% of the annual plan. We maintain our view that fiscal spending will be the key driver for Vietnam’s economy over the short term. In addition, we expect the Government will continue to boost public investment toward the end of the year to curb the negative impact of the global demand slowdown on exports and production, thus supporting economic growth. 


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