PP 7767/09/2010(025354)

Vietnam
Economic Highlights
•
MARKET DATELINE

1 June 2010

Stronger Economic Activities In May

◆ .Vietnam’s industrial production inched up to 13.8% yoy in May, a rebound from +13.0% in April and
compared with +14.0% in March. This suggests that industrial activities remained resilient on the back of a sustained
increase in export demand. Stronger growth was underpinned by a pick-up in output of the non-state and FDI. These
were, however, offset partially by a slowdown in output of the state sector.

◆ Exports also strengthened to 12.6% yoy in January-May, from +8.9% yoy in the first four months of the year
and -6.8% in the corresponding period of 2009, in line with a recovery in global demand for the country’s exports.
Stronger growth was reflected in higher exports of cashew nuts and pepper as well as smaller declines in the exports
of coffee and rice. This was aided by a pick-up in the exports of coal, petroleum, chemical, plastic products and
footwear during the period. These were, however, offset partially by a moderation in the exports of machinery
equipment & parts, electronic & computer parts, electric wires & cables, clothing and wooden products. Imports,
however, moderated to 29.8% yoy in January-May, from +35.6% in January-April. Despite the moderation, growth
remained strong, suggesting that domestic demand and exports will likely remain resilient.

◆ Similarly, retail sales grew at a faster pace of 26.9% yoy in January-May, compared with +25.0% in January-
April and +21.0% in the corresponding period of 2009. This suggests that consumer spending is gathering strength,
in tandem with a recovery in economic activities and jobs.

◆ Inflation, on the other hand, moderated to 9.1% yoy in May, from +9.2% in April. This was the second
consecutive month of easing, pointing to a slight moderation in price pressure, on account of a softer food & foodstuffs
prices. Still, we believe stronger economic growth could exert pressure on Vietnam’s inflation, which will likely prompt
the State Bank of Vietnam to raise its key policy rate by around 200 basis points to 10% by end-2010.

◆ As a whole, the key economic data in May suggest that economic activities are still improving in the 2Q,
after recording a growth of 5.8% yoy in the 1Q and growth will likely expand at a faster pace of 6.4% in 2010,
compared with +5.3% in 2009. On the currency front, the Dong will likely remain weak in view of the widening trade
deficit. We expect the Dong to weaken to around 19,100 by end-2010.

Vietnam’s industrial production inched up to 13.8% yoy in May, a rebound from +13.0% in April and compared
with +14.0% in March (see Table 1). This suggests that industrial activities remained resilient on the back of a sustained
increase in export demand. Stronger growth was underpinned by a pick-up in output of the non-state sector, which
bounced back to +11.4% yoy in May, from +10.9% in April but off a high of +14.4% in March. Similarly, production
of the FDI sector grew at a faster pace of 19.2% yoy in May, compared with +17.6% in April. This was attributed to
a stronger growth in the production of non-oil & gas related products and a smaller decline in oil & gas output during
the month. These were, however, offset partially by a slowdown in output of the state sector, which weakened to 8.2%
yoy in May, from +8.7% in April, on account of a moderation in output of the centrally-managed sub-sector and a smaller
decline in output of the locally-managed sub-sector. Mom, industrial production eased to 3.3% in May, the second straight
month of easing and from +5.0% in April and +17.2% in March, indicating that factory output is losing some momentum.

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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Exports also Table 1

strengthened to Industrial Output at Contant 1994 Prices
12.6% yoy in 2009 2010
January-May (see Sep Oct Nov Dec Jan Feb Mar Apr May YTD
Table 2), from +8.9% %yoy
yoy in the first four Total 13.8 11.9 13.0 13.4 28.4 -1.3 14.0 13.0 13.8 13.6
months of the year State Sector 8.5 6.8 6.1 6.5 23.1 -6.6 5.1 8.7 8.2 9.8
and -6.8% in the Centrally Managed 9.8 9.6 8.4 8.6 24.9 -2.0 7.9 11.5 10.9 13.3
corresponding period Locally Managed 3.1 -4.0 -2.8 -1.6 16.2 -21.9 -3.9 -2.0 -1.8 -2.8
of 2009, in line with a Non-state Sector 1 6 . 5 1 5 . 7 1 7 . 3 1 7 . 0 3 1 . 1 0.4 1 4 . 4 1 0 . 9 1 1 . 4 1 2.4
recovery in global FDI Sector 1 5 . 0 1 2 . 1 1 3 . 9 1 4 . 9 2 9 . 1 0.2 1 8 . 8 1 7 . 6 1 9 . 2 1 6.7
demand for the Oil and Gas 1 5 . 9 2.1 -3.3 -8.6 -16.6 -13.8 10.7 -10.3 -4.1 -8.0
country’s exports. Other 14.9 13.3 16.1 18.2 36.7 2.3 19.8 21.6 22.4 20.5

This was due to a Source : The General Statistics Office of Vietnam

turnaround in exports
of domestic
companies, while multinational companies’ exports moderated Table 2 External Trade
but remained strong during the month. Stronger growth was
reflected in higher exports of cashew nuts and pepper as well Exports Imports Trade

as smaller declines in the exports of coffee and rice, which fell Balance
by 21.0% and 3.0% yoy respectively in January-May (see (YTD, % yoy) (YTD, US$m)
Table 3), compared with the corresponding rates of -22.8%
and -3.1% in January-April. This was aided by a pick-up in ‘09 J-Mar 2.4 -45.0 1,647
the exports of coal (34.4% yoy in January-May versus +27.7% J-Jun -10.1 -33.7 -2,108
in January-April), which was offset partially by a sharper drop J-Sep -14.3 -24.9 -6,542
in the exports of crude oil (-17.4% yoy in January-May versus J-Dec -9.7 -14.7 -12,246
-9.2% in January-April). A pick-up in the exports of petroleum,
chemical, plastic products and footwear during the period also ‘10 Jan 28.1 86.6 -1,300
helped. These were, however, offset partially by a moderation J-Feb 0.1 39.6 -1.745
in the exports of machinery equipment & parts, electronic & J-Mar -1.6 37.6 -3,511
computer parts, electric wires & cables, clothing and wooden J-Apr 8.9 35.6 -4,650
products, which eased to 72.9%, 30.4%, 100.4%, 17.1% and J-May 12.6 29.8 -5,376
31.1% yoy respectively in January-May, from the corresponding
rates of +74.7%, +39.1%, +122.9%, +18.9% and +31.6% in 2 0 0 9 (Jan-May) -6.8 -37.0 -1,128
January-April. Imports, however, moderated to 29.8% yoy 2 0 1 0 (Jan-May) 1 2 . 6 2 9 . 8 -5,376
in January-May, from +35.6% in January-April and -37.0% in Source : The General Statistics Office of Vietnam
the corresponding period of 2009. Despite the moderation,
growth remained strong, suggesting that domestic demand and exports will likely remain resilient.

Similarly, the country’s retail sales grew at a faster pace of 26.9% yoy in January-May, compared with +25.0%
in January-April and +21.0% in the corresponding period of 2009 (see Table 4). This suggests that consumer spending
is gathering strength, in tandem with a recovery in economic activities and jobs. The pick-up in retail sales was on the
back of higher sales at private and FDI controlled enterprises, which strengthened to 39.8% and 32.7% yoy respectively
in January-May, from the corresponding rates of +37.3% and +30.3% in January-April. Stronger retail sales at individual
and collective controlled enterprises, which accelerated to 16.9% and 37.6% yoy respectively in January-May, from the
corresponding rates of +15.7% and +34.1% in January-April, also helped. These were aided by a pick-up in retail sales
at state owned enterprises, which strengthened to 44.3% yoy in January-May, from +40.4% in January-April. In terms
of sectors, stronger retail sales were reflected in trade, hotel & restaurants and tourism sectors. These were, however,
offset partially by a slowdown in sales at services sector.

Vietnam’s headline inflation, on the other hand, moderated to 9.1% yoy in May, from +9.2% in April (see Table
5). This was the second consecutive month of easing, pointing to a slight moderation in price pressure, on account of
a softer food & foodstuffs prices, which eased to 9.2% yoy in May, from +9.6% in April and a peak of +10.7% in March.
A more moderate increase in the costs of transport, which grew at a slower pace of +18.2% yoy in May, after easing
to +20.1% in April, also helped. These were aided by a slower increase in prices of household appliances and a sharper
drop in the costs of communications. These were, however, offset partially by a pick-up in the costs of housing &
construction materials, which accelerated to 17.9% yoy in May, from +17.3% in April and +15.0% in March. Similarly,
the prices of textiles & footwear and the costs of healthcare as well as sports & entertainment inched up during the month.

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Table 3
Cummulative Exports And Imports by Commodity
2009 2010
J-Sep J-Oct J-Nov J-Dec Jan J-Feb J-Mar J-Apr J-May
Exports: (YTD, %, yoy)

Agriculture
Fishing -9.5 -8.7 -6.2 -6.7 27.9 19.2 14.5 20.2 18.0
Coffee -19.7 -17.3 -17.4 -19.0 -4.7 -26.8 -31.0 -22.8 -21.0
Rice -7.8 -7.8 -5.8 -8.0 50.6 -6.8 -16.8 -3.1 -3.0
Mining
Coal -21.2 -19.4 -11.3 -4.5 68.6 3.3 21.2 27.7 34.4
Crude Oil -45.6 -43.0 -41.7 -40.0 24.5 -15.4 -9.6 -9.2 -17.4
Manufacturing
Rubber -41.0 -41.2 -32.4 -25.2 210.0 64.5 104.0 141.7 85.5
Wooden Products -14.2 -14.0 -11.1 -9.9 37.0 29.2 26.3 31.6 31.1
Clothing -1.0 -1.5 -1.1 -1.3 3.9 16.8 12.3 18.9 17.1
Footwear -13.7 -16.1 -15.9 -15.8 6.3 4.0 10.1 5.7 7.7
Precious stones/Metals 278.6 269.3 264.0 243.1 -87.1 -98.1 -98.1 -97.0 -65.1
Electronics/Computer Parts 0.0 0.1 1.1 5.1 56.4 30.6 40.7 39.1 30.4
Machinery Equipments/Parts 0.0 -0.4 2.3 9.1 139.9 75.1 66.5 74.7 72.9

Imports:
Petroleum -52.6 -47.9 -45.3 -43.8 53.0 20.1 33.2 19.6 16.3
Raw Plastic -13.7 -10.9 -7.4 -4.1 114.3 46.0 53.0 54.7 50.6
Fabrics -8.7 -8.6 -6.9 -5.2 65.8 9.3 13.2 19.0 23.9
Footwear Materials -23.7 -23.2 -20.8 -17.8 68.5 12.5 21.6 24.8 31.7
Electrical/Computer Supplies -0.6 -0.3 3.2 5.9 123.5 59.7 53.1 43.7 39.1
Auto -23.9 -12.0 -3.6 2.5 156.6 115.3 66.0 57.0 39.5
Machinery Equipments/Parts -15.4 -13.0 -10.3 -5.6 42.3 14.5 10.8 14.8 11.3

Source : The Federal Bureau of Statistics Of Vietnam

The costs of education and

Table 4
the prices of beverages &
Cumulative Retail Sales
tobacco, on the other hand
2009 2010
remained stable during the
J-Jun J-Sep J-Oct J-Nov J-Dec Jan J-Feb J-Mar J-Apr J-May
month. The State Bank of
( YTD, % yoy )
Vietnam has kept its key
policy rate unchanged Total 20.0 18.6 18.0 18.5 18.6 23.1 27.4 24.1 25.0 26.9
since it raised it to 8.0% in By Ownership
December 2009 and said State -3.7 0.5 -1.5 -1.2 1.4 -1.0 1 2 . 8 20.3 40.4 44.3
that it would keep it Collective 14.9 15.1 17.6 17.5 18.8 19.2 37.6 28.7 34.1 37.6
unchanged at this level in Individual 2 2 . 8 2 0 . 0 2 1 . 3 1 9 . 4 2 2 . 9 2 7 . 1 2 4 . 9 1 8 . 7 15.7 16.9
June. Still, we believe Private 2 3 . 7 2 3 . 5 2 0 . 9 2 5 . 4 2 0 . 3 2 5 . 0 3 7 . 6 3 4 . 8 37.3 39.8
stronger economic growth FDI 19.7 12.4 0.6 6.7 9.5 24.3 20.1 26.3 30.3 32.7
could exert pressure on
Source : The General Statistics Office of Vietnam
Vietnam’s inflation, which
will likely prompt the State
Bank of Vietnam to raise its key policy rate by around 200 basis points to 10% by end-2010.

As a whole, the key economic data in May suggest that economic activities are still improving in the 2Q, after
recording a growth of 5.8% yoy in the 1Q. In response to stronger economic growth and rising inflationary pressure,
Vietnam has shifted its policy stance to a tightening bias. The pace, however, remains gradual. As it stands, it has yet
to tighten its policy further after raising its key policy rate in December. Nevertheless, in a move to liberalise the lending
practices in the country, the State Bank of Vietnam has allowed banks to set their own lending rates for some loans
effective 25 February. The move has led to a rise in lending rates. This has unintentionally resulted in a tightening of
monetary conditions and might have contributed to a slow pick-up in loans. The central bank, however, has since
requested state-owned banks to cut lending rates to between 12-13%, after the cost of credit increased to around 15-
17% (from 12% previously) following the floating of lending rates. As a whole, we believe the Vietnamese economy

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 1 June 2010

will likely expand at a faster pace of 6.4% in 2010, compared with +5.3% in 2009. On the currency front, the
State Bank of Vietnam has devalued the Dong twice to ease pressure on its current account deficit. The first was on
27 November and the Dong was devalued by about 5%. The second devaluation was on 10 February with the Dong
falling by 3.3% against the US dollar. The Dong will likely remain weak in view of the widening trade deficit, which will
likely be mitigated by a pick-up in an inflow of foreign direct investment (FDI). We expect the Dong to weaken to around
19,100 by end-2010.

Table 5
Weights In The CPI
2008 2009 2010 2010 2009 2010
Apr May Apr May (Jan-May) *
Group: %,yoy %,mom %,yoy %,Cumyoy

Food and footstuffs 22.9 6.1 -0.6 -0.1 9.6 9.2 17.0 9.2
Food 29.7 11.2 -1.9 -1.3 10.1 9.0 19.8 11.7
Foodstuffs 20.3 3.6 -0.5 +0.1 9.5 9.2 13.9 8.4
Beverages & cigarette 4.5 5.7 +0.4 +0.3 8.0 8.0 11.6 7.8
Garment, footwear, hat 3.9 3.5 +0.4 +0.3 6.9 7.0 11.2 6.7
Housing/Construction materials 8.5 10.3 +2.5 +1.5 17.3 17.9 3.4 15.5
Household appliances 2.7 1.3 +0.5 +0.4 5.4 5.3 11.2 5.2
Medical products/Healthcare 3.6 0.4 +0.3 +0.3 3.3 3.3 8.5 3.2
Transport 12.0 10.3 +0.1 +0.1 20.1 18.2 -2.6 18.1
Communication -11.8 -7.5 -0.1 -0.1 -4.1 -6.0 -8.8 -4.3
Education 0.8 2.3 +0.1 +0.1 6.5 6.5 6.3 6.4
Culture, sport, entertainment 2.6 2.5 +0.3 +0.4 3.6 4.0 8.4 2.6
Other consumer goods & services 5.1 7.4 +0.3 +1.3 12.4 12.3 11.3 12.2

TOTAL CPI 13.5 5.3 +0.1 +0.3 9.2 9.1 11.5 8.8

*: RHBRI’s estimates

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