PP 7767/09/2010(025354)

Vietnam
Economic Highlights
•
MARKET DATELINE

30 August 2010

Economic Activities Remained Resilient In August

◆ Vietnam’s industrial production rebounded to 15.2% yoy in August, after easing to +12.3% in July and
compared with +14.6% in June. This suggests that industrial activities held up relatively well despite signs of slowing
global economic growth.

◆ Exports grew at a faster pace of 19.7% yoy in January-August, compared with +17.5% in January-July and
-14.2% in the corresponding period of 2009. This was on account of a stronger growth in domestic companies’
exports but was offset partially by a moderation in exports of multinational companies during the month.

◆ Retail sales, however, eased to 26.1% yoy in January-August, compared with +26.4% in January-July but still
faster than +18.4% recorded in the corresponding period of 2009. This suggests that consumer spending is
moderating but remains resilient.

◆ Vietnam’s headline inflation held stable at 8.2% yoy in August, the same rate of increase as in July and
compared with the peak of +9.5% in March. As a result, we believe the State Bank of Vietnam is likely to
keep its key policy rate stable in the near term, after raising it to 8.0% in December 2009. Indeed, the
central bank said on 15 August that it would keep its key policy rate at 8.0% in September.

◆ As a whole, August’s key economic data suggest that economic activities, though easing, are likely to
remain resilient. As a whole, the economy will likely expand at a more moderate pace in the 2H of the year,
after picking up in the 1H. For the full-year, we believe the Vietnamese economy, however, will likely expand
at a faster pace of 6.4% in 2010, compared with +5.3% in 2009. Meanwhile, the State Bank of Vietnam
devalued the Dong for the third time since November 2009 and by 2% on 17 August. We are keeping our exchange
rate forecast unchanged and we expect the Dong to weaken to around Dong19,500/US$ by end-2010.

Vietnam’s industrial production rebounded to 15.2% yoy in August, after easing to +12.3% in July and compared
with +14.6% in June (see Table 1). This suggests that industrial activities held up relatively well due to a rebound in
output of the non-state sector to 16.0% yoy in August, from +12.4% in July and +14.4% in June. Similarly, production
of the FDI sector grew at a faster pace of 18.8% yoy in August, compared with +15.8% in July. This was on account
of a turnaround in the oil & gas output and a pick-up in the production of non-oil & gas related products during the month.
These were aided by a stronger growth in output of the state sector, which bounced back to 8.1% yoy in August, after
three consecutive months of easing to +6.3% in July. The pick-up was underpinned by a faster increase in output of
the centrally-managed sub-sector and a smaller decline in output of the locally-managed sub-sector. Mom, industrial
production moderated to 1.5% in August, after picking up to +3.6% in July, indicating that factory output is losing
momentum but remains resilient.

Peck Boon Soon

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

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Similarly, exports
Table 1
grew at a faster
Industrial Output at Contant 1994 Prices
pace of 19.7% yoy
2009 2010
in January-August,
Sep Oct Nov Dec Jan Mar Jun Jul Aug YTD
compared with
%yoy
+17.5% in January-
Total 13.8 11.9 13.0 13.4 28.4 14.0 14.6 12.3 15.2 13.7
July (see Table 2) and
State Sector 8.5 6.8 6.1 6.5 23.1 5.1 6.9 6.3 8.1 9.0
-14.2% in the
Centrally Managed 9.8 9.6 8.4 8.6 24.9 7.9 7.8 9.1 10.8 12.1
corresponding period
Locally Managed 3.1 -4.0 -2.8 -1.6 16.2 -3.9 3.2 -4.6 -3.0 -3.7
of 2009. This was on
Non-state Sector 16.5 15.7 17.3 17.0 31.1 14.4 14.4 12.4 16.0 12.7
account of a stronger
FDI Sector 15.0 12.1 13.9 14.9 29.1 18.8 19.3 15.8 18.8 17.3
Oil and Gas 15.9 2.1 -3.3 -8.6 -16.6 10.7 -3.6 -1.8 2.4 -4.7
growth in domestic
Other 14.9 13.3 16.1 18.2 36.7 19.8 22.2 17.8 20.7 20.3
companies’ exports
but was offset
Source : The General Statistics Office of Vietnam
partially by a
moderation in exports
of multinational companies during the month. The pick-up in
Table 2 External Trade exports was underpinned by faster increases in the exports of
Exports Imports Trade rice and fishing products, which strengthened to 11.4% and 11.8%
Balance yoy respectively in the first eight months of 2010, from the
(YTD, % yoy) (YTD, US$m)
corresponding rates of +3.4% and +11.2% in January-July (see
Table 3). A smaller decline in the exports of coffee (-5.1% yoy
in January-August versus -10.4% in January-July) also helped.
‘09 J-Mar 2.4 -45.0 1,647
These were aided by faster increases in the exports of electronic
J-Jun -10.1 -33.7 -2,108
& computer parts, plastic products, rubber, wooden products,
J-Sep -14.3 -24.9 -6,542
clothing and footwear, which picked up to 30.2%, 26.4%, 89.3%,
J-Dec -9.7 -14.7 -12,246
36.1%, 17.8% and 18.8% yoy respectively in January-August,
from the corresponding rates of +29.0%, +25.1%, +85.1%,
‘10 Jan 28.1 86.6 -1,300
+33.5%, +17.4 and +13.8% in January-July. Similarly, the
J-Mar -1.6 37.6 -3,511
exports of precious stones & metal fell by a smaller magnitude
J-Jun 15.7 29.4 -6,728
during the period. These were, however, offset partially by a
J-Jul 17.5 25.5 -7,443
moderation in the exports of machinery equipment & parts and
J-Aug 19.7 24.4 -8,155
electric wires & cables, which eased to 61.2% and 72.2% yoy
respectively in January-August, from the corresponding rates of
2 0 0 9 (Jan-Aug) -14.2 -27.7 -5,121
+62.8% and +79.5% in January-July. In the same vein, the
2 0 1 0 (Jan-Aug) 19.7 24.4 -8,155
exports of crude oil fell by a larger magnitude of 20.5% yoy in
January-August (-18.9% in January-July), while the exports of
Source : The General Statistics Office of Vietnam
coal and petroleum products slowed down during the period.
Imports, however, softened to 24.4% yoy in January-August,
from +25.5% in January-July and compared with -28.2% in the corresponding period of 2009. This suggests that domestic
demand will likely moderate in the months ahead. In the first eight months of 2010, the trade deficit widened to
US$8.2bn, from a deficit of US$5.1bn in the corresponding period of 2009.

Retail sales, however, eased to 26.1% yoy in January-August, compared with +26.4% in January-July but still
faster than +18.4% recorded in the corresponding period of 2009 (see Table 4). This suggests that consumer spending
is moderating but remains resilient. The moderation was due to a slowdown in retail sales at private and individual
controlled enterprises, which eased to 41.8% and 14.1% yoy respectively in January-August, from the corresponding
rates of +42.2% and +14.6% in January-July. These were, however, mitigated by a pick-up in retail sales at FDI
controlled enterprises, which strengthened to 49.2% yoy in January-August, from +43.4% in January-July. Retail sales
at collective controlled and state owned enterprises, on the other hand, held stable at +36.5% and +41.5% yoy
respectively in January-August, the same rate of increase as in January-July. In terms of sectors, slower retail sales
were reflected in trade, hotel & restaurants and services sectors. These were, however, mitigated by a pick-up in retail
sales at tourism sector.

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

Agriculture
Fishing -9.5 -8.7 -6.2 -6.7 27.9 14.5 14.2 11.2 11.8
Coffee -19.7 -17.3 -17.4 -19.0 -4.7 -31.0 -17.3 -10.4 -5.1
Rice -7.8 -7.8 -5.8 -8.0 50.6 -16.8 0.4 3.4 11.4
Mining
Coal -21.2 -19.4 -11.3 -4.5 68.6 21.2 30.4 29.2 29.0
Crude Oil -45.6 -43.0 -41.7 -40.0 24.5 -9.6 -17.8 -18.9 -20.5
Manufacturing
Rubber -41.0 -41.2 -32.4 -25.2 210.0 104.0 81.3 85.1 89.3
Wooden Products -14.2 -14.0 -11.1 -9.9 37.0 26.3 32.5 33.5 36.1
Clothing -1.0 -1.5 -1.1 -1.3 3.9 12.3 17.2 17.4 17.8
Footwear -13.7 -16.1 -15.9 -15.8 6.3 10.1 10.9 13.8 18.8
Precious stones/Metals 278.6 269.3 264.0 243.1 -87.1 -98.1 -48.5 -40.7 -37.1
Electronics/Computer Parts 0.0 0.1 1.1 5.1 56.4 40.7 31.4 29.0 30.2
Machinery Equipments/Parts 0.0 -0.4 2.3 9.1 139.9 66.5 67.4 62.8 61.2

Imports:
Petroleum -52.6 -47.9 -45.3 -43.8 53.0 33.2 11.6 8.4 8.2
Raw Plastic -13.7 -10.9 -7.4 -4.1 114.3 53.0 49.3 38.5 38.1
Fabrics -8.7 -8.6 -6.9 -5.2 65.8 13.2 27.0 34.3 26.6
Footwear Materials -23.7 -23.2 -20.8 -17.8 68.5 21.6 35.7 35.4 38.8
Electrical/Computer Supplies -0.6 -0.3 3.2 5.9 123.5 53.1 37.8 32.4 31.5
Auto -23.9 -12.0 -3.6 2.5 156.6 66.0 27.6 19.5 14.8
Machinery Equipments/Parts -15.4 -13.0 -10.3 -5.6 42.3 10.8 13.1 14.0 14.9

Source : The General Statistics Office of Vietnam

Meanwhile, Vietnam’s
Table 4 headline inflation held
Cumulative Retail Sales stable at 8.2% yoy in
2009 2010 August, the same rate
J-Jun J-Sep J-Oct J-Nov J-Dec Jan J-Mar J-Jun J-Jul J-Aug of increase as in July and
( YTD, % yoy ) compared with the peak
of +9.5% in March (see
Total 20.0 18.6 18.0 18.5 18.6 23.1 24.1 26.7 26.4 26.1
Table 5). A pick-up in
By Ownership
prices of food &
State -3.7 0.5 -1.5 -1.2 1.4 -1.0 2 0 . 3 4 4 . 9 4 1 . 5 41.5
foodstuffs, beverages &
Collective 14.9 15.1 17.6 17.5 18.8 19.2 28.7 40.9 36.5 36.5
tobacco and household
Individual 22.8 20.0 21.3 19.4 22.9 27.1 18.7 14.6 14.6 14.1
appliances and the costs
Private 23.7 23.5 20.9 25.4 20.3 25.0 34.8 42.3 42.2 41.8
of healthcare, sports &
FDI 19.7 12.4 0.6 6.7 9.5 24.3 26.3 41.1 43.4 49.2
entertainment and
Source : The General Statistics Office of Vietnam education was offset by
slower increases in the
costs of housing & construction materials and transport as well as a sharper drop in the costs of communications. Prices
of food & foodstuffs inched up to 10.0% yoy in August, from +9.6% in July and a low of +9.2% in May. The costs of
housing & construction materials and transport, on the other hand, eased to 12.6% and 8.7% yoy respectively in August,
from the corresponding rates of +13.5% and +9.8% in July. Similarly, the costs of communications fell by a larger
magnitude of 5.9% yoy in August, compared with -1.5% in July. The prices of textiles & footwear, on the other hand,
remained stable during the month. Vietnam expects inflation to be well under controlled and will likely ease further due
to slower economic growth in the 2H of the year. As a result, the State Bank of Vietnam is likely to keep its key
policy rate stable in the near term, after raising it to 8.0% in December 2009. Indeed, the central bank said on
15 August that it would keep its key policy rate at 8.0% in September. Policymakers, however, have been urging banks
to reduce interest rates in order to help the economy, as the liberalisation of interest rates has led to a rise in borrowing

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costs unnecessarily. Commercial banks have since lowered their lending rates to around 12-15% in July, from as high
as 14.5% previously.

As a whole, August’s key economic data suggest that economic activities, though easing, are likely to remain
resilient. We believe the economy will likely expand at a more moderate pace in the 2H of the year, after picking up
in the 1H. Nevertheless, for the full-year, we believe the Vietnamese economy will likely expand at a faster pace
of 6.4% in 2010, compared with +5.3% in 2009. Meanwhile, the State Bank of Vietnam devalued the Dong for the
third time since November 2009 and by 2% on 17 August. It set the new reference rate for the currency at Dong18,932/
US$, a rise from Dong18,544/US$. Banks are allowed to trade at up to 3% on either side of the reference rate. The
move is aimed at containing Vietnam’s trade deficit. The Dong was last devalued on 11 February when the central bank
lowered the reference rate by about 3.3% to Dong18,544/US$. The move followed an earlier 5% devaluation on 25
November 2009 when the trading band was also narrowed to 3%, from 5% on the same day. Meanwhile, we are keeping
our forecast unchanged and we expect the Dong to weaken to around Dong19,500/US$ by end-2010.

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

Food and footstuffs 22.9 6.1 +0.2 +0.3 9.6 10.0 11.1 9.4
Food 29.7 11.2 -1.0 +0.7 9.3 10.5 6.8 10.9
Foodstuffs 20.3 3.6 +0.5 +0.1 9.8 10.0 10.4 8.9
Beverages & cigarette 4.5 5.7 +0.4 +0.3 8.0 8.2 10.5 7.9
Garment, footwear, hat 3.9 3.5 +0.4 +0.5 6.9 6.9 10.0 6.8
Housing/Construction materials 8.5 10.3 -0.5 +0.1 13.5 12.6 2.0 15.0
Household appliances 2.7 1.3 +0.4 +0.4 5.1 5.2 10.0 5.1
Medical products/Healthcare 3.6 0.4 +0.2 +0.4 3.1 3.4 7.5 3.2
Transport 12.0 10.3 -0.9 +0.4 9.8 8.7 -3.6 15.5
Education 0.8 2.3 +0.1 +1.3 6.4 7.6 5.5 6.6
Culture, sport, entertainment 2.6 2.5 +0.3 +0.1 3.8 3.9 7.3 3.1
Other consumer goods & services 5.1 7.4 +0.3 +0.2 11.2 10.9 11.5 11.8

TOTAL CPI 13.5 5.3 +0.1 +0.2 8.2 8.2 8.1 8.6

*: RHBRI’s estimates
Source : The General Statistics Office of Vietnam

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