The April Report: Did domestic demand stir up supply side?
- GDP growth in Q1/2015 was much higher compared with the same period last year, trade balance has displayed large deficit, CPI has been on an uptrend, credit expansion has been improving. Yet after zooming in, we found that significantly increased production is mainly contributed by FDI sector with their export activity to satisfy external demands, consumption as well as domestic economy are still in the recovery stage.
- GDP expanded at 6.05% in Q1, much higher than the pace of 5.06% a year earlier, owing to the double growth rate of Industrial sector, whilst agriculture and service sectors showed slower expansion.
- Core CPI rose 0.42% through Q1/2015, lower than the rate of 0.64% a year earlier, showing consumption is still slugglish amid lower oil prices.
- Imports of non FDI sector rose 9.5%, steady from the 10.5% of a year earlier, while exports contracted by 8% as the prices of major exports fell sharply, which in the long run may affect earnings of domestic firms.
- Reviewing some sectors such as tourism with domestic segment, automobiles and household furniture shows that consumers in Vietnam are willing to pay for goods and services that are somewhat less essential or more luxurious to upgrade their living quality, but there is no clear indication of the strong recovery of the overall domestic consumption.
GDP expanded at 6.05% in Q1, much higher than the pace of 5.06% a year earlier, owing to the double growth rate of Industrial sector, whilst agriculture and service sectors showed slower expansion.
Major contribution to the unexpectedly strong growth of GDP in Q1/2015 is the booming industrials, particularly manufacturing and processing accounted for nearly 15% in GDP and up 9.5%. FDI contribution is pivotal because their high added value items have led growth, including cellphone (up more than 3 times), automobile production (up 53%), and television (up 39%).
In the field of Agriculture, Forestry and Fisheries, the Agriculture and Fisheries slow down expansion pace, though receiving many incentives from the Government.
Most service industries also grew more slowly compared with the same period last year, except sales activities and real estate business slightly increased.
Core CPI rose 0.42% through Q1/2015, lower than the rate of 0.64% a year earlier, showing the domestic demand is still slugglish amid lower oil prices.
The CPI rose 0.15% in March, while fell 0.05% in Feb. (when Tet took place), because transport price drop more sharply in February (-4.4%) than in Mar. (-0.3%). Excluding fuel prices, CPI in Mar. rose 0.19%, weaker than the hike of 0.37% in Feb. It is often that the CPI goes up sharply in Feb. and retreat harshly in Mar.. However, this kind of seasonality this year are not clear, partly as price pressures during Tet moved into Mar. 2015 when the New Year came late and fell in the price surveying period of Mar. which is conducted by VN General Statistics Office.
Core CPI (after excluding foodstuff, energy and other prices controlled by the Government) increase by 0.42% in Q1/2015, lower than the same period last year (0.64%). CPI continues to increase steadily at low levels, showing the domestic demand is still slugglish amid lower oil prices.
We forecast the Apr. CPI to grow at 0.4% under the impact of fuel and power price hikes (respectively average at 10% and 7.5%), however we assess this impact will be temporary and shed a small indirect impact on the price level.
Imports of non FDI sector rose 9.5%, steady from the 10.5% of a year earlier, while exports contracted by 8% as the prices of major exports fell sharply.
The year-to-date trade balance as of Mar. 15 presented a deficit of 1.6 billion, contrary to a surplus of nearly $ 1.1 billion during the same period last year. The non-FDI sector net import increased by US$ 1.8 billion, and the FDI sector net export decreased by US$ 900 million.
The deficit of the non-FDI sector increase sharply as its export contracted by 8.1% (i.e. US$ 800 million). Its import expanded by 9.5%, steadily compared to the previous year’s growth rate of 10.5%, showing no signs of booming import activities. The significantly downsizing export is the result of commodity prices constantly staying at low levels during the 1st quarter. Many key exported items of local firms have shrank their values from a year earlier, such as coals (-74%), coffee (-32%), rice (-32%), crude oil (-31%), cassava (-12%), aqua-products (-17%) and rubber (-6%). Export contraction in the long run may affect earnings of domestic firms.
FDI sector maintain its export expansion at 18.4%, but imports rose much stronger than last year at 26.5%. Import acceleration mainly focused on electronics, machinery, equipments, phones and parts, iron and steel products and fabrics, to supply inputs for their chains in Vietnam.
Low commodity prices helped lower year-to-date import value of commodities by US$ 387 million compared with the same period last year, but also reduce export value of commodities by nearly US$ 1.1 billion. As a result, net commodity exports decreased by US$ 700 million year-to-date. Apparently, Vietnam’s trade balance will continue worsening if commodity prices cannot take off from their current low levels.
Assessing consumer demand through some specific sectors
In addition to the macroeconomic statistics, we examined the growth of a number of specific economic sectors for a more comprehensive assessment of people's consumption. Reviewing some sectors such as tourism with domestic segment, automobiles and household furniture shows that consumers in Vietnam are willing to pay for goods and services that are somewhat less essential or more luxurious to upgrade their living quality, but there is no clear indication of the strong recovery of the overall domestic consumption.
If foreign tourists to Vietnam fell 10 consecutive months on a year-on-year basis due to the decline in the number of tourists from China (amid concerns on Southeast Sea tension), from Russia (amid the Ruble depreciation) and from many other countries whose currencies are relatively weaker against the Dong, according to the VN National Administration of Tourism, the number of domestic tourists increased quite dramatically, 10% in 2014, higher than the level of 7.7% in the previous year, reaching 38.5 million.
Revenue from tourism increased by 15%, stronger than the increase in number of tourists, suggesting that the average expenditure for each travel has also increased. This shows that people are willing to spend on goods that are less essential.
Car consumption in 2014 increased by nearly 19 thousand units compared from a year earlier, higher than the previous year’s increase of 15 thousand units. The automobile market is still growing vigorously during the first months of 2015, with year-on-year sales expansion by 50% and 100% in January and February respectively.
This suggests that people are willing to spend on durable goods to improve their living standard. Low lending interest rate has also helped boost sales of this kind of goods.
- Home furniture and appliance
The growth of this market has leveled off at about 5%, after rising sharply in 2014, showing that people are not interested in spending for durable goods but with lower grade.
Vietnam Consumer confidence released by ANZ in March decreased slightly due to a decline in number of consumers who think that "this is a good time" to buy home items. ANZ said this point in the survey imply that consumption will not immediately become solid though disposable income improved thanks to lower oil prices.
However, the overall trend is still a steady improvement in consumer confidence, the average index of first 3 months 2015 reached 140, higher than the average of 134.5 in 2014. The report indicates that 36% consumers think that their financial status is "better" than the previous year, and 19% said it is "worse".
Besides, according to the latest survey by Nielson, Vietnam consumer confidence continued to improve significantly in Q4/2014. However, Nielsen also identified from their survey that Vietnamese consumers are the most economical in the world. The proportion of respondents having saving tendency is 77%, compared with a global rate of 48%, and much higher than this of Indonesia - the 2nd one in Southeast Asia with 70%.
VIETNAM’S MACRO AND MARKET INDICATORS
VIETNAM’S ECONOMIC CALENDAR IN APRIL
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