TPP Raises Long-Run Expectations

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TPP: Impact on Imports and Exports

Monthly Data    Sep      Oct

CPI (% YoY)     0.00      0.00

Real retail sales (% YoY)           9.1            8.6

IIP (% YoY)       10.1      8.8

Export val (USD b)        13.8      14.4

Import val (USD b)        14.0      14.5

Disbursed FDI (USD b)  1.2        2.2


Yearly Forecasts           2014A   2015F

Nominal GDP USD b     185.7    200.0

Real GDP (% YoY)        6.0        6.8

CPI (end, %YoY)           1.8        1.0

Exports val (% YoY)      13.6      10.0

Imports val (%YoY)       12.1      14.0

Trade bal /GDP (%)       1.1        (1.5)

M2 / GDP (%)   129.6    136.5

Total credit / GDP (%)   98.3      102.6

Disbursed FDI (USD b)  12.4      13.5

GDP Growth, % Contribution by Sector

Vietnam Headline Inflation

  • Macro indicators are gradually revealing the increasing impact of sluggish global demand. The trade deficit has widened to USD 4.1b at end of Oct as export growth slowed, prompting a revision to our trade deficit projection to USD 4.5-5b from USD 3.3b. Meanwhile industrial production growth has seen some contraction.
  • Domestic demand is resilient. The AC Nielsen Consumer Confidence index nudged up in 3Q15 after a brief slide in 2Q15. Retail sales growth dipped slightly to 8.6% (from 9% in Sep) although auto sales are still strong with Sep sales increasing 17% vs. Aug while the 9M15 figure soared 53% vs. 9M14.
  • The highlight of the month of course was the conclusion of the massive trade pact TPP. Amid stalled global trade, this trade deal is a big prize for Vietnam’s exports as it will open a wider access to major trade partners, especially the US. Furthermore, TPP could jumpstart another wave of overseas capital into Vietnam and spur faster economic reform.
  • The month-long 10th NA Meeting commenced on Oct 20, where the 2016-2020 socio-economic objectives were revealed (see details on page 6). The government aims to achieve GDP growth of 6.5%-7% in the period, underpinned by improving SOEs and promoting local SMEs in supporting industries and pursuing proactive free-trade policies.

Oct CPI picked up marginally, as expected, on higher demand for foodstuffs.

  • October CPI rose 0.11% vs. September, fueled by foodstuff price hikes ahead of the wedding season.
  • However, all other readings continued showing modest pace of increase: YoY print remained at 0%, YTD CPI only picked up 0.51% and avg. CPI through Jan-Oct fell to 0.64%. We reiterate our year-end forecast at 1%.

Trade deficit widened to USD 4.1b with a deficit of USD 100m in Oct

  • Export growth in 10M15 vs. 10M14 slowed to 8.5% from 9.2% in 9M15 vs. 9M14 with total turnover through Jan-Oct at USD 135b. Meanwhile, import growth saw slighter rate of expansion, up 14.3% in 10M15 vs. 10M14 (cf. + 15.6% in 9M15 vs. 9M14).
  • Vietnam’s trade deficit with China rose to USD 27.1b as of end-Oct. The US remained the biggest client of made-in-Vietnam products, accounting for 21% of Vietnam’s total exports (USD 27.8b, + 18% vs. 10M14).



Monthly FDI disbursement nearly doubled in Oct 2015 vs. Sep 2015

  • FDI disbursement reached USD 2.2b in October (vs. USD 1.2b in September). Year-to-date, total disbursement climbed to USD 11.8b (+ 16.3% vs. last year’s same period) and most likely to surpass our full-year target of USD 12.5-13b.
  • Registered FDI in 10M15 surged 41% vs. 10M14 to USD 19.3b. Manufacturing continued to attract the most overseas capital, accounting for 65% of the committed FDI in 10M15 and we believe the momentum will be carried forward with the recent conclusion of TPP draft text and Vietnam-EU FTA. Other sectors that also captured large FDI flows were electricity generation (14%) and real estate (11%).

The Macro Picture

Consumer Price Index


Prices picked up slightly as expected on higher demand for foodstuff

Figure 1: Inflation in September – A Summary

On-month CPI

(Oct-15 vs. Sep-15)

On-year CPI

(Oct-15 vs. Oct-14)

Year-to-date CPI

(Oct-15 vs. Dec-14)

Average CPI

(10M15 vs. 10M14)

Headline inflation 0.11% 0.00% 0.51% 0.67%
Core inflation 0.06% 1.82% N/A 2.12%


Source: GSO

  • Food and foodstuff price incurred the sharpest increase in Oct, up 0.19% vs. Sep as the foodstuff sub-category rose 0.34% on seasonal wedding demand.
  • Meanwhile, transportation basket fell marginally by 0.05%. Consecutive pump price cuts from August to mid-Sep (8% on aggregate) offset the impact of price hikes of 5% during mid-Sep-mid Oct (the tracking period for October CPI) – Transportation suppliers priced services lower than the previous month (transportation services sub-category prices dropped 1.76%).

November inflation outlook – Another month of subtle price appreciation

  • As consumption normally accelerate towards year-end ahead of holiday season, we expect prices of food and foodstuff to nudge up 0.15% in November. Similarly, F&B, garments & consumer goods categories will see some price appreciation in November.
  • However, we believe that the current low commodity price in general (or pump price in particular) would limit the degree of price increase and hence we expect a moderate price hike across these consumer-related sub-categories.
  • Of note, on Nov 3, the pump price was cut by another 4.3% (or VND 770 per litre). As such, price of transportation is likely to see another month of considerable decline.

We estimate Nov inflation to edge up 0.13% vs. Oct and retain our full-year forecast at 1%.

Figure 2: Vietnam inflation
Source: GSO

Domestic Activity

Real retail sales growth slowed slightly to 8.6% but consumer confidence inches up.

Figure 3: Real retail sales and consumer confidence
Source: GSO, AC Nielsen


Auto sales rose sharply in September – 4Q is the peak season for auto sales

Figure 4a: VAMA sales Figure 4b: Imported CBUs
Source: VAMA Source: Customs Office, GSO


Industrial Production

Industrial production growth decelerate as external demand is putting some pressure on local manufacturers

Figure 5: IIP growth in October 2015 – A comparison

Oct-15 vs.
Sep-15 vs. Sep-14 Oct-14 vs.
10M15 vs. 10M14 10M14 vs. 10M13
Overall IIP 8.8% 10.1% 7.9% 9.7% 6.9%
Mining 6.7% 8.3% -0.9% 8.4% 0.7%
Manufacturing 9.1% 10.3% 10.2% 10.0% 8.4%


Source: GSO


Figure 6: IIP of Manufacturing Sub-industries
Source: GSO


Fact of the Month


A glance at 2016-2020 socio-economic objectives


At the on-going 10th NA meeting, review on 2011-2015 socio-economic picture was presented, together with government targets for the 2016-2020 (which are awaiting approval from the NA, merely a formality process).

At a glance, the industry and construction sector continue to be highlighted as the growth-driving pillar. In particular, more focus is placed on building up a growth model led by domestic demand when the government aims to boost growth of service sector and its contribution to GDP growth.

Despite stalled global trade, the government targets 10% export growth in 2016 (on par with 2015’s goal). This ambitious goal was underpinned by the strong pursuit for proactive trade liberalization policies, or more specifically the recent conclusion of the TPP draft and Vietnam-EU FTA.

Meanwhile, fiscal deficit remains the key macro risk (the topic has been hotly debated at the meeting so far) as it is projected to further widen to VND 254t (~USD 11.3b) in 2016 (+12% vs. 2015 plan). Difficulties in raising bond via the domestic market this year raised lots of questions on funding issues (Please see our report Macro Update – The Fiscal Deficit Headache for more details). Meanwhile 2016 will see another considerable amount of G-bond to expire at VND 103t or USD 4.6b (cf. VND 119t or USD 5.3b in 2015)

Figure 7: 2016-2020 socio-economic objective

2015 2016 – 2020
GDP growth 6.5% 6.5% – 7%
Industry & Construction growth (%) 9.6%* 8.7% – 9.5%
Service growth (%) 6.2%* 6.6% – 6.9%
Industry & Construction (% GDP) 39.4%* 40%
Service (% GDP) 43.7%* 45%
Social Development Capital (% GDP) 31.2% 31%
GDP per capita (USD) 2,228 2,450 – 3,750
Inflation (annual average) 1.5%-2.5% 5% (in 2016)
Export growth (%) 10% 10% (in 2016)
Export value (USD b) 165 181


(*) Note: data as of 9M15

Figure 8: Fiscal deficit in 2016

2015 (Plan) 9M15 (Actual) 2016 (Plan)
Fiscal Revenue (VND b) 911,100 683,000 1,014,500
Fiscal Expenditure (VND b) 1,147,100 832,970 1,268,500
Fiscal Deficit (VND b) 226,000 140,970 254,000
Fiscal Deficit (% of GDP) 5.04% 4.94% 4.95%


Source:, MOF


Macro Indicators

Source: General Statistics Office of Vietnam, State Bank of Vietnam


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