Vietnam’s inflation quickens in Feb; exports under cost pressure amid Red Sea crisis
Jamille Tran
[HO CHI MINH CITY] Vietnam’s consumer prices picked up in February as domestic demand spiked ahead of the week-long Lunar New Year holiday, known locally as Tet.
The index rose 1.04 per cent from January’s level and 3.98 per cent on a 12-month basis. The General Statistics Office (GSO) attributed the growth largely to the high consumption for Tet and the rising prices of everyday items such as fuel and rice.
Among the categories that saw the largest price increases were transport; food, beverages and tobacco; and culture and entertainment. Inflation in the postal and telecommunications segment, as well as education, continued to cool in February.
Core inflation – which strips out the costs of food, fuel, healthcare and education services – stood at 2.96 per cent in February, quickening from the 2.72 per cent rise a month ago. Vietnam’s legislature has said that it wants to keep inflation under control this year at between 4 per cent and 4.5 per cent.
Retail sales in February grew by 8.5 per cent year on year but decreased 2.3 per cent from the month before.
Tourism continued to recover in February, with the number of arrivals rising 64.1 per cent from a year earlier, led by visitors from China and South Korea. The total arrivals for the first two months of 2024 were almost equal to the same two months in pre-pandemic 2019, mainly due to Vietnam’s easier visa policies.
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Maybank analysts wrote in a Feb 20 note that they expected a healthy recovery of Vietnam’s tourism sector with expanding numbers of domestic and foreign visitors this year. However, they remained cautious about the government’s target of 17 to 18 million foreign visitors, which is higher than the bank’s forecast of 16 million.
Exports under cost pressure
Preliminary estimates showed that Vietnam’s exports in February shrank by 5 per cent from a year ago to US$24.8 billion. The industrial production index also dipped by 6.8 per cent year on year.
Nguyen The Minh, head of the research and development division at Yuanta Securities Vietnam, said the reduction was largely because of the Tet holiday in February. The week-long holiday fell in January last year.
He also pointed out that higher shipping costs have undermined exports.
Officials from the trade ministry said recently that the ongoing Red Sea shipping crisis was weighing on Vietnam’s trade activities, especially within its main export markets in Europe and North America.
Companies have reportedly rerouted their shipping vessels, resulting in delivery delays, higher freight rates and shipping capacity constraints.
“The conflict has increased insurance premiums and fuel costs, adding financial pressure on Vietnamese exporters and potentially affecting their global competitiveness,” said Irfan Ulhaq, a lecturer in logistics and supply chain management at RMIT University in Vietnam.
“Industries reliant on just-in-time supply chains or perishable goods are particularly vulnerable to disruptions. Delayed imports of raw materials and components can significantly hinder production schedules,” he added.
While the magnitude of the impact remains to be seen, manufacturers expressed optimism as they anticipate improvements in demand, customer volume and planned releases of new products, according to an S&P report on Vietnam’s purchasing managers’ index.
For the first two months of 2024, exports and imports still expanded 19.2 per cent and 18 per cent year on year respectively, resulting in a trade surplus of US$4.72 billion as at the end of February.
Industrial production in the first two months also grew 5.7 per cent year on year, led by manufacturing (up 5.9 per cent) and electricity and gas (up 12.2 per cent).
Healthy investment prospects
Amid a fresh anti-corruption probe in the energy sector and concerns around the poor health of Vietnamese communist party leader Nguyen Phu Trong, observers say the investment prospects in Vietnam remain upbeat with strong interest from foreign investors.
As at Feb 20, disbursed foreign direct investment (FDI) grew 9.8 per cent from a year ago to US$2.8 billion, the highest amount in the January-February period in the past five years, the GSO noted.
Registered FDI remained healthy, rising 38.6 per cent from a year ago to US$4.29 billion, though still lower than 2021 and 2022 levels.
This progress was fuelled by fresh pledges, which saw committed capital more than doubling (103.8 per cent) and the number of projects up by more than 55 per cent, according to a report by the Ministry of Planning and Investment.
Singapore was the largest foreign investor in the first two months, accounting for 48.5 per cent of the total value, followed by Hong Kong, Japan and mainland China.
On the Vietnamese stock market, Minh from Yuanta Securities believed that foreign investors would reverse the net selling experienced last year.
This could be grounded in the market’s relatively low valuations, ongoing economic recovery, narrowing gap between the Vietnamese dong and the US dollar interest rates, and the potential market upgrade to an emerging status from the current frontier classification.
“It will be less challenging for Vietnamese firms to mobilise capital this year, both via bank credit and on the stock market,” he said. “However, the allocation of newly-raised capital for actual business endeavours may face obstacles and vary across different sectors as economic growth is likely to be restrained and unstable for the year ahead.”
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