Macro Update - Tet Holiday distorts economic data

Production contracted due to the Tet Holiday. The overall index of industrial production (IIP) declined 8.0% YoY in January, with the manufacturing sub-sector falling 9.1% YoY as a result of fewer working days in the month due to the Tet Holiday. Production activities could improve in February as workers have returned after the holiday, in addition to last year being a low base as Tet occurred in February 2022.

Retail sales continued to experience strong growth. Retail sales of goods & services increased 20% YoY in January thanks to higher consumption demand ahead of the Tet Holiday and the relatively low base last year. However, according to S&P Global’s survey, employment continued to decline in January due to a decreasing number of new orders, which could partly affect retail sales growth in coming months. Nevertheless, we believe retail sales growth will remain solid in February given the relatively low base in the same period last year.

FDI dropped due to the long holiday. Registered and disbursed FDI in January dropped 16.5% YoY and 19.8% YoY to USD1.4bn and USD1.7bn, respectively. However, of the total FDI pledges, registrations for new projects jumped 3.1x to over USD1.2bn. Meanwhile, registrations for expansion of current FDI projects plummeted nearly 76% YoY to USD306mn. We expect both FDI registration and disbursement activities to improve in February following the Tet Holiday. Also, the Foreign Investment Agency of the Ministry of Planning and Investment (MPI) revealed in January that FDI registration could reach USD36bn-38bn in 2023 (up 30% to 37.2% from 2022). Robust growth of registered capital should translate into stronger disbursement in the future.

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