Vietnam’s new export orders are expected to continue growing in the months ahead due to the "surprising strength of the U.S. economy," as evidenced by the highest level of U.S. consumer confidence since the Covid-19 reopening boom, says Vietnam-focused fund manager VinaCapital.
U.S. firms over-ordered “Made in Vietnam” products during the Covid supply-chain disruptions and then subsequently slashed their purchases of such products last year so that they could reduce their bloated inventories.
However, following the most aggressive pace of inventory destocking in over 10 years, this trend is now coming to an end. Consequently, Vietnam’s new export orders resumed growth in January, the fund manager explains in a recent report.
After falling for the first time in 2023 since the global financial crisis, Vietnam’s exports resumed growth in the fourth quarter, and surged 42% year-on-year to $33.57 billion in January. The growth was driven by a 33% leap in high-tech products, which account for one-third of the country’s total exports.
The high January growth rates were boosted by the low base set by a drop in Vietnam’s exports in early-2023, as well as by the timing of the Tet (Lunar New Year) holiday. There were more than 25% additional business days in January 2024 than in January 2023 because Tet was on January 21-27 last year versus in February this year.
“But January export growth was impressive, even when considering the timing of the Tet holiday and/or last year’s drop in Vietnam’s exports. More importantly, we expect Vietnam’s export recovery to continue gaining momentum in the months ahead,” notes the VinaCapital report.
The report attributes its assessement to a near 60% year-on-year increase in computer and electronics exports. Global PC sales plunged 30% year-on-year in early 2023 but resumed growth late last year, partly driven by users upgrading to more powerful, AI-capable machines.
Global smartphone sales also returned to growth in late-2023 for the first time in two years, although the ongoing rebound is less pronounced than for laptop computers in the absence of compelling new phone features prompting users to upgrade.
Vietnam’s smartphone exports grew 16% year-on-year in January, driven by the introduction of Samsung’s new S24 phone during the month.
Positive spillover effect on manufacturing, consumption
Manufacturing output grew 19.3% year-on-year in January, so export growth far outstripped manufacturing growth, which means that manufacturers’ inventories of finished products fell last month. Vietnam’s January PMI survey also confirmed that decline in finished product inventories.
The combination of falling inventories and growing new orders means production in Vietnam’s factories will need to increase in order to meet increasing demand for “Made in Vietnam” products, the report says.
It notes that manufacturing accounts for nearly 25% of Vietnam’s GDP, so faster manufacturing output growth would meaningfully boost GDP growth. In addition, nearly 10% of Vietnam’s workforce are employed by FDI companies in relatively high paying jobs. FDI companies laid off workers in early-2023, which is one reason that the country’s GDP fell to just 3.3% in Q1, but manufacturing employment has already fully recovered from last year’s layoffs, according to Vietnam’s General Statistics Office.
Consequently, the economy is likely to get a boost from both an increase in manufacturing output and higher consumption this year, supported by an increase in manufacturing employment. Consumer confidence and domestic consumption, which were weak in 2023 based on layoffs and troubles in the real estate sector, is coming back.
“While we do not expect a robust increase in consumer spending in the first quarter, we do expect stronger consumer spending and domestic consumption as the year unfolds,” says the report.
Vietnam’s Ministry of Industry and Trade has anticipated an increase in export revenue of about 6% this year, with an expected trade surplus of $15 billion.
The index of industrial production is set to expand 7-8% year-on-year, while total retail sales of goods and services are expected to climb 9%.
In 2023, Vietnam's total export value reached $355.5 billion, down 4.4% compared to the previous year, according to the General Statistics Office.