Hao Zhou is the Chief Economist of Guotai Junan International and a member of the China Chief Economist Forum
Following a strong GDP recovery in the first quarter, Vietnam's economy continued to show a positive growth trend in April, driven by the government's efforts to expand investment spending, the business environment, and the continuous improvement of the legal framework and institutions.
In April, Vietnam's economy "blossomed" in many places. In April 2024, Vietnam's industrial production maintained an upward trend. The index of domestic industrial production (IIP) surged 6.3% year-on-year, up from 4.8% in the previous month. After a sharp decline in the fourth quarter of 2022 and negative growth in the first four months of 2023, the IIP growth rate has been picking up at a sustained high pace, which means that industrial production has become an important driver of GDP growth in 2024.
The manufacturing purchasing managers' index (PMI) also pointed to an accelerated recovery in industrial production. Vietnam's manufacturing PMI recorded 50.3 in April, which has remained in the expansion range since 2024, except for March slightly below the 50 line.
The large-scale inflow of foreign direct investment has further promoted the deep integration of Vietnam's industrial chain into the international production and trade chain. Especially in the context of the tension between the world's major manufacturing and consumer countries in recent years, Vietnam's import and export activities have become more active. Data as of the end of April showed that the total amount of foreign committed direct investment into Vietnam reached about US$9.27 billion, an increase of about 4.5% over the same period in 2023. In April, the export scale reached 30.9 billion US dollars, a year-on-year increase of 10.6%; The scale of imports reached 30.3 billion US dollars, a year-on-year increase of 19.9%.
It is worth mentioning that with the effective intervention of the government, Vietnam's inflation and exchange rate pressures are not significant. Vietnam's inflation grew by 4.4% year-on-year in April 2024 and averaged around 3.9% in the first four months of this year, close to the upper limit of the government's target of 4.0%-4.5% in 2024. Although the Vietnamese dong has also faced depreciation pressure this year, the Vietnamese dong is still one of the relatively good performing currencies in the Asian region, thanks to the effective intervention of the government.
Looking ahead, with strong government policy intervention, as well as the continuous expansion of foreign direct investment and new orders in the manufacturing PMI, Vietnam's economy is expected to achieve rapid growth in the long term with the manufacturing industry as the core. Following a strong GDP recovery in the first quarter, Vietnam's economy continued to show a positive growth trend in April, driven by the government's efforts to expand investment spending, the business environment, and the continuous improvement of the legal framework and institutions. Since April, the global economic situation has remained unfavorable for Vietnam, on the one hand, the Federal Reserve has kept interest rates high to curb inflation; On the other hand, the continuous rise in global oil prices under the geopolitical conflict continues to put pressure on Vietnam's economic environment. Although the external environment is still quite challenging, under the strong control of government policies, Vietnam's economy continued its strong performance in the first quarter in April, and even accelerated its upward trend.
The expansion of government public investment is the original driving force of economic growth. Vietnam's public investment spending has grown relatively slowly in recent years, but is coming back strongly in 2024. The latest estimates from the General Statistics Office (GSO) of Vietnam show that public investment spending in the first quarter of 2024 reached about 13% of the plan, compared with only 9.7% in the same period in 2023. This is largely due to the vigorous efforts of the Vietnamese government and the Prime Minister in promoting public investment spending in various ministries and localities. In addition to having a good guiding effect on the economy, the expansion of government investment can also reflect to a large extent the optimistic expectations of government departments on the future economic prospects.
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Vietnam's economy "blossomed" in April
In April 2024, Vietnam's industrial production maintained an upward trend. The index of domestic industrial production (IIP) surged 6.3% year-on-year, up from 4.8% in the previous month. After a sharp decline in the fourth quarter of 2022 and negative growth in the first four months of 2023, the IIP growth rate has been picking up at a sustained high pace, which means that industrial production has become an important driver of GDP growth in 2024. Further, the manufacturing industry is the main contributor to industrial growth, accounting for 5.5 percentage points of total industrial growth. Its growth is also higher than the overall level of the industry. The year-on-year growth rate of manufacturing production surged to 7.0% in April, driving the growth rate to 6.3% in the first four months of 2024, and the overall growth rate of the industry in the same period was about 6.0%. In addition, the share of electricity production and distribution in industrial production growth was about 1.1 percentage points, and the year-on-year growth rate in April was also as high as 11.3%.
On the other hand, the manufacturing purchasing managers' index (PMI) also pointed to an accelerated recovery in industrial production. Vietnam's manufacturing PMI recorded 50.3 in April, which has remained in the expansion range since 2024, except for March slightly below the 50 line. New orders were the main driver of the recovery in the manufacturing PMI, which picked up steadily in April after a slight pullback in March, with the pace of expansion hitting the highest level since August 2022. Looking ahead, the inflow of new orders reflects an improvement in the outlook for future corporate earnings, which is also expected to provide continued support for the economic recovery.
With the resumption of industrial production, Vietnam's total social and consumer services improved in tandem, with a year-on-year increase of 8.5% in April. According to a report by the Statistics Office of Vietnam, the total retail sales of consumer goods and consumer service revenue in April 2024 reached about VND 522.1 trillion, a year-on-year increase of 9%. Among them, food increased by 10.3%; household tools and equipment increased by 12.9%; textiles and apparel increased by 12.7%; accommodation and food services increased by 19.1%; Tourism increased by 57.6 percent. In the first four months, the country's total retail sales of consumer goods and consumer service revenue reached about VND 2,062.3 trillion, an increase of 8.5% year-on-year. Among them, the retail sales of goods reached about VND 1,594.5 trillion, accounting for 77.3% of the total retail sales of consumer goods and total revenue from consumer services, a year-on-year increase of 7.1%. Accommodation and catering services revenue reached about VND 237.3 trillion, a year-on-year increase of 15.3%.
In addition, the international tourism industry has successfully transformed after years of difficult times, driven by the new visa policy. In April 2024, Vietnam received nearly 1.6 million international tourists, up 58.2% year-on-year. In the first four months, the number of international tourists reached 6.2 million, a year-on-year increase of 68.3%, and an increase of 3.9% compared to 2019 before the outbreak of the new crown epidemic.
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Repositioning of Vietnam's industrial chain under the new pattern of global economy
In addition to the rejuvenation of international tourism, the large-scale inflow of foreign direct investment into Vietnam has further promoted the deep integration of Vietnam's industrial chain into the international production and trade chain. Especially in the context of the tension between the world's major manufacturing and consumer countries in recent years, Vietnam's import and export activities have become more active. Data as of the end of April showed that the total amount of foreign committed direct investment into Vietnam reached about US$9.27 billion, an increase of about 4.5% over the same period in 2023. It is worth noting that in 2023, Vietnam attracted a total of US$36.6 billion in foreign direct investment, of which about US$23.2 billion has been disbursed, both of which are the highest in the history of economic opening. The capital paid in 2024 is also very impressive, reaching $6.3 billion, up 7.4% year-on-year.
The continued recovery of foreign direct investment (FDI) and the manufacturing sector has kept import and export growth high. In April, the export scale reached 30.9 billion US dollars, a year-on-year increase of 10.6%; The scale of imports reached 30.3 billion US dollars, a year-on-year increase of 19.9%. Exports in the first four months were US$115.2 billion, up 15.0% year-on-year; imports were US$108.3 billion, up 15.4% year-on-year. Cumulatively, in the first four months of 2024, Vietnam's total exports amounted to US$123.64 billion, up 15% year-on-year. Total imports are expected to be US$115.24 billion, up 15.4% year-on-year; Vietnam's trade surplus in goods in the first four months amounted to US$8.4 billion. Overall, the rapid growth of imports indicates that the free trade agreements (FTAs) between Vietnam and major export markets, especially the EU-Vietnam Free Trade Agreement (EVFTA), may have begun to come into force, and the trend of high year-on-year growth in Vietnam's imports and exports is expected to continue in the coming months, which is undoubtedly a very positive sign for an export-oriented economy like Vietnam in the medium to long term.
It is worth mentioning that with the effective intervention of the government, Vietnam's inflation and exchange rate pressures are not significant. Vietnam's inflation grew by 4.4% year-on-year in April 2024 and averaged around 3.9% in the first four months of this year, close to the upper limit of the government's target of 4.0%-4.5% in 2024. Inflationary pressures stem from sharp increases in food and food raw material prices (3.7% in the first four months of 2024), housing and building materials prices (5.5%), medicines and medical services (8.5%), and education and training prices (8.8%).
Along with the intensification of inflation, the Vietnamese dong (VND) has also depreciated to a certain extent recently, depreciating by about 4.2% as of the end of April 2024. Under depreciation pressure, the State Bank of Vietnam (SBV), the regulator responsible for controlling inflation and managing the exchange rate, intervened in April. It sold about $400 million in foreign currency to ease market demand and raise interest rates on OMO (open market operations) and Treasury bonds. In addition, market deposit rates were raised simultaneously by a number of banks in April, further adding to the attractiveness of the VND. With effective government intervention, the Vietnamese dong remains one of the relatively good performing currencies in Asia, compared to the Japanese yen (JPY) (-10.6%), South Korean won (KRW) (-6.8%), Thai baht (THB) (-7.9%), Indonesian rupiah (IDR) (-5.3%) and Philippine peso (PHP) (-4.1%).
To sum up, Vietnam's economy continued its strong performance in the first quarter in April, while external demand led to the continuous improvement of foreign trade, the domestic economy blossomed in many places, especially the industrial production with manufacturing as the core performed well, and the growth rate of IIP further increased. Looking ahead, with strong government policy intervention, as well as the continuous expansion of foreign direct investment and new orders in the manufacturing PMI, Vietnam's economy is expected to achieve rapid growth in the long term with the manufacturing industry as the core.