Vietnam’s industrial production plunge

Unexpected decrease

In November, the index of industrial production unexpectedly decreased by 1.6% compared to October, causing the industry's growth to plummet to 5.4%, much lower than the average increase of 9.6% in the first 10 months of the year. However, since the beginning of 2019, the index has increased by 9.3%, which is just lower than the growth rate of 10.1% in the same period last year.

In comparison with October, production of the mining industry in November dropped to 5.3%, of which coal mining decreased by 8%, and oil & gas exploitation decreased by 6.4%. Besides, the manufacturing and processing industry also experienced a decrease of 1.1% in November, leading to the decrease to only 6.5% in 11-month growth rate (compared to the 11% average for the first 10 months of the year).

According to Bao Viet Securities Company (BVSC), that the index of industrial production went down in November with the decline in both mining and manufacturing industries was surprising in the absence of major fluctuations in domestic and world demand. This shows that it is necessary for further monitoring, however, it can be expected that this is only temporary and industrial production is likely to recover in December.

Regarding domestic demand, retail sales in November were estimated to increase by 0.8% over October and by 12.1% over the same period in 2018. Retail sales of goods accounted for 76% of the general increase, up 12.7% over the same period; accommodation and catering services accounted for 12% and increased by 9.6%; travel service revenue accounted for 1% and increased by 12.2%. It is obviously seen that domestic consumption demand plays an important role in supporting the country's gross domestic product (GDP) this year, offsetting the slowing growth of exports.

In terms of inflation, the consumer price index (CPI) in November increased by 0.96% over the previous month and by 3.78% over the same period last year. This is the second consecutive month that CPI has increased sharply. 9 out of 11 groups of products have witnessed an increase in prices over the past month, of which food and catering services had the highest increase (2.74%), particularly pork price has increased by 18.5% (making the general CPI increase by 0.78%).

In general, 80% of CPI increase in November was due to pork price. The urgent solution proposed by the Government is to import 200,000 tons of pork to supplement the supply. There is a possibility that the price of pork, although not increasing as drastically as in November, will continue to remain high in December.

Disbursement of investment capital accelerated

Regarding investment capital, registered foreign direct investment (FDI) decreased by 11.2% in the first 11 months; realized FDI increased by 6.8% over the same period while capital contribution and share purchase increased by 47.1%. Although registered FDI capital (including newly registered and adjusted capital) is still decreasing over the same period, the decrease in November (-11.2%) has been narrowed significantly compared to the decrease in the second quarter (-35%).

In addition, the number of newly registered projects in the first 11 months of this year has increased by 28%, which indicates that 2019’s newly registered projects have lower average capital size than last year. Regarding public investment, investment capital from the State budget in November increased sharply compared to October (+ 9.8%). This is not surprising when the fourth quarter is usually the time when public investment capital is disbursed sharply to complete the planned targets.

Bank liquidity fluctuated

Another highlight of Vietnam’s macroeconomics in November is that the liquidity of the banking system fluctuated sharply. In the first two weeks of the month, interbank interest rates remained low, below 2% / year for all terms of less than one month. However, in the last two weeks of November, the rates jumped sharply, peaking at 4.5% / year on November 26 before “cooling down” to around 3.5% / year in recent sessions.

The liquidity in the system became narrower, reflected by the high interbank interest rates, which may stem from a number of reasons including the decision to lower the deposit rate cap for terms of less than six months by the State Bank (SBV); year-end seasonal factors; improved disbursement of public investment and especially the policy of withdrawing money from the State Treasury deposited at the commercial bank system to the State Bank's total account under Circular 58/2019 / TT-BTC effective from November 1, 2019.

Due to lack of liquidity, the SBV has increased the net injection of capital through open market operations. In the last week of November, the SBV conducted a net injection of VND 25,000 billion into the banking system. Interbank interest rates are expected to remain higher in December than the average of the first 10 months.


Alice Hoang Thao - VietnamCredit

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