Vietnam: Inflation and trade trends shape VND – Commerzbank

Commerzbank’s Vietnam update highlights rising inflation and a narrowing trade deficit, with strong manufacturing-led imports and resilient exports. The bank notes elevated CPI and external deficits limit scope for aggressive easing, but robust activity persists. USD/VND has been stable in a tight range, with potential support from portfolio inflows as FTSE upgrades Vietnam to Secondary Emerging Market status.

Rising prices and inflows support VND

"August CPI inflation picked up to 4.9% yoy (Bloomberg consensus: 4.7%) vs 4.5% in July, reversing the moderation seen over the previous two months. Inflation has remained elevated this year, with average CPI rising 4.5% yoy in the first eight months, broadly in line with the authorities' 4.5% full-year inflation objective. The renewed increase underscores the challenge facing policymakers as they seek to support strong economic growth while containing price pressures."

"Looking ahead, the intensification of El Nino weather conditions could add further upward pressure on food prices in the coming months. Core CPI, which excludes food, energy and administered prices, remained broadly stable at around 4.5% in August, suggesting limited broadening in underlying price pressures as yet."

"On trade, the August trade deficit narrowed more than expected to USD0.1bn (Bloomberg consensus: USD1.1bn) vs USD3.6bn previously. This was largely driven by a downside surprise in import growth, which rose 37.9% yoy (Bloomberg consensus: 41.5%) vs 41.4% in July. "

"Overall, the data continue to point to strong underlying manufacturing momentum rather than a deterioration in Vietnam's external competitiveness."

"In FX, USD/VND fell 0.1% to 26,080 on Friday but was broadly unchanged for the week. The pair has traded in a narrow 26,070-26,100 range since late August, declining from the late July peak of 26,340. Portfolio inflows could provide further support for the VND in the coming months."

"FTSE is set to upgrade Vietnam from Frontier Market to Secondary Emerging Market effective 21 September, a move that could attract up to USD5bn in equity inflows."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)