Industrial production index picks up due to improved exports in May

The Industrial production index (IIP) went up thanks to strong export figures in May, registering an increase of 2.6% from the previous month and 8.9% on-year due to stronger exports and a low base effect from last year, said the World Bank (WB) in its Vietnam Macro Monitoring, May edition.

According to details set out in the report, despite a sequential improvement in retail sales in May, annual data suggests that consumer demand remains weak.

Retail sales increased by 1.2% in May from a contraction of 0.3% in April, driven by an improvement in good sales and witnessed a rise of 3.3% compared to the 8.1% seen during the same period from last year.

Both exports and imports surged in May. Exports of goods increased by 6.5% after seeing a contraction in April, driven by high-tech products. In parallel, imports grew by 9.5% in May, compared to a 0.6% drop recorded in April.

Compared with the same period from 2023, both exports and imports registered sizable growth rates of 15.8% and 29.9%, respectively, partly due to low base effects from 2023.

Industrial production index picks up due to improved exports in May

The significant growth in the import of intermediate inputs suggests increased demand from trade partners thereby leading to strong exports in the near future.

Meanwhile, foreign direct investment (FDI) performance continued to be solid. FDI commitment reached US$11.07 billion as end of May, 2023, a figure 2% higher than the same period from last year.

Cumulative FDI disbursement improved, registering US$8.3 billion, 7.8% higher than the same period from 2023, with the majority of FDI continued to flow into manufacturing and real estate sectors.

While headline inflation remained unchanged, core inflation moderated slightly. The consumer price index (CPI) inflation remained at 4.4% in May compared to April. Food and housing remain key contributors to CPI inflation, with core inflation being moderated slightly from 2.8% in April to 2.7% in May.

The exchange rate continued to be under pressure whilst the average overnight interbank interest rate remained high in May, reflecting the continued tightening of the liquidity by the State Bank of Vietnam (SBV).

The authorities proposed measures aimed at supporting the domestic economy. These include extending the VAT reduction, reducing lending interest rate, and advancing by six months the implementation of the real estate revised laws to July 1.

According to information given by economists, while external demand has been recovering, the performance of domestic demand, especially consumption, remains weak. The authorities have therefore moved to take some measures aimed at supporting the economy.

However, given the strong US$, the reduction of interest rates to support investment could intensify pressures on the exchange rate, they added.

Therefore, continued support of aggregate demand through capital expenditures is also recommended by WB experts.

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