US economy hits bottom, 'Made in Vietnam' goods recover

Vietnam's exports hit rock bottom

According to Michael Kokalari, Director of Macroeconomic Analysis and Market Research at VinaCapital, in 2023, the factor with the most negative impact on Vietnam's GDP growth is the decline in demand for "Made in Vietnam" products.

Vietnam has suffered its longest export slump in more than a decade, with domestic manufacturing activity shrinking by 1% in the first seven months of 2023. This is because most of the products made in Vietnam are shipped abroad. There are signs that exports are likely to recover in the final quarter of the year.

VinaCapital expects Vietnam’s exports to fully recover by 2024, bringing manufacturing back to 8-9% growth. This will boost GDP growth from below 5% in 2023 (according to VinaCapital’s forecast) to 6.5% in 2024.

Besides, the Government 's measures to support the economy, including cutting operating interest rates, will also contribute to economic growth next year.

Many Vietnamese businesses rely on exports. Therefore, the organization expects that the recovery in exports will boost the profit growth of listed companies from 6% in 2023 to more than 20% in 2024. This factor will support the VN-Index in the following months.

According to VinaCapital, the US is Vietnam's largest export market (accounting for about a quarter of total export value). US retailers and consumer goods companies such as Nike, Lululemon, etc. ordered too many "Made in Vietnam" productshttps://vietnamnet.vn/"Made in Asia" last year due to expectations of economic recovery after the COVID-19 pandemic, but that did not happen.

*Vietnam's exports are forecast to increase again in the fourth quarter.*

After COVID-19 lockdowns were lifted, instead of buying more consumer goods, Americans prioritized spending on services like travel and dining out.

To make matters worse, these companies have over-ordered from factories in Asia to address supply chain issues and shortages, with the likes of Walmart, Target and Nike ending 2022 with inventories up more than 20% from a year earlier.

America recovers, "eagles" continue to pour money into Vietnam

To deal with the high inventory levels, multinational corporations cut orders at Vietnamese factories, leading to Vietnam's exports to the US in the first 7 months of 2023 falling more than 20% compared to the same period last year.

However, US companies have been ramping up inventory cuts throughout the past months of 2023. The ISM inventory index hit a nine-year low in June and rose slightly in July.

US retailers' inventories are still up about 5% year-over-year, but inventories of "Made in Vietnam" products such as consumer electronics and apparel are estimated to be unchanged year-over-year.

All of these factors are closely related to Vietnam’s export figures. Efforts by companies like Walmart and others to reduce inventories caused Vietnam’s exports to decline sharply in the first half of this year. This is now coming to an end, and Vietnam’s exports to the US increased sharply in July, reaching an increase of nearly 7% compared to June. As a result, Vietnam’s exports to the US have improved significantly compared to the same period last year.

The improvement in exports to the US has contributed to the recovery of Vietnam's total export value, from a 12% year-on-year decrease in the first half of 2023 to a 2% decrease in July.

In addition, according to VinaCapital, Vietnam is also benefiting from multinational corporations shifting production from China to Vietnam. This explains why Vietnam's exports only fell 2% year-on-year in July, much better than the 15% decline in China, 16% in South Korea and 10% in Taiwan (China).

All Asian exporters benefited from the bottoming of the US inventory cycle, but Vietnam was the only Asian country to benefit significantly from the establishment of new FDI factories. Meanwhile, FDI inflows to China hit a record low in the second quarter.

VinaCapital believes that the improvement in Vietnam's exports will accelerate in the coming time.

Vietnam's manufacturing PMI increased from 46.2 points in June to 48.7 points in July. This is also seen as a signal that businesses are starting to increase imports/purchases of input materials, gradually boosting production activities due to expectations of a recovery in export orders by the end of this year.

Michael Kokalari said that exports of consumer electronics, smartphones and garments will recover strongly. Garment exports to South Korea and Japan increased sharply by about 30% compared to the previous month in July.

Global 'belt-tightening', a series of billion-dollar strengths lower export targets Inflation forces global consumers to 'tighten their belts' to balance spending. Many agricultural products, which are Vietnam's billion-dollar strengths, are facing difficulties and have to lower export targets.

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