Macro Update - Declining new orders could signal slower recovery

- IIP reached the highest level in nine months. In November, the overall Index of Industrial Production (IIP) grew 5.8% YoY – the highest monthly YoY increase over the past nine months, in which IIP of the manufacturing sub-sector increased 6.3% YoY. In 11M 2023, overall IIP and IIP of the manufacturing sub-sector inched up 1.0% YoY and 1.1% YoY, respectively. Production could be negatively affected by declining new orders and new export orders as reported by S&P Global. However, production in the coming months may be supported by: (1) higher demand for the upcoming holidays (New Year and Lunar New Year); (2) the National Assembly approving an extension of the 2% VAT cut to June 30, 2024, and the potential extension of a 50% reduction of the environmental protection tax on petroleum in 2024, which could support consumer demand and enterprises.

- Retail sales continued growing. Retail sales of goods & services continued to increase, rising 10.1% YoY in November, lifting total retail sales growth in 11M 2023 to 9.6% YoY (+7.0% YoY in real terms), in which strong growth was seen in food/foodstuffs (+11.4% YoY), education products (+14.7% YoY), accommodation & catering services (+15.3% YoY), and tourism (+50.5% YoY). We expect that several factors could support retail sales in December and the beginning of 2024, including (1) upcoming holidays such as Christmas, New Year, and the Tet Holiday; (2) ongoing recovery in tourism; and (3) the extension of the 2% VAT cut to June 30, 2024.

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