Commerzbank's latest update on Vietnam highlights a renewed rise in inflation and a narrowing trade deficit, with strong manufacturing-led imports and resilient exports shaping the economic landscape [1]. August CPI inflation increased to 4.9% year-on-year, surpassing the Bloomberg consensus of 4.7% and up from 4.5% in July, reversing the previous moderation in price growth. The average CPI for the first eight months of the year stood at 4.5% year-on-year, aligning with the authorities' full-year inflation objective of 4.5% [1]. Policymakers face the challenge of supporting robust economic growth while containing price pressures, especially as intensifying El Nino weather conditions could further drive up food prices in the coming months [1]. Core CPI, which excludes food, energy, and administered prices, remained stable at around 4.5% in August, indicating limited broadening of underlying price pressures [1].
On the trade front, Vietnam's August trade deficit narrowed more than expected to USD0.1 billion (Bloomberg consensus: USD1.1 billion), down from USD3.6 billion previously. This improvement was largely due to a downside surprise in import growth, which rose 37.9% year-on-year (Bloomberg consensus: 41.5%) compared to 41.4% in July [1]. The data suggest strong underlying manufacturing momentum rather than a deterioration in Vietnam's external competitiveness [1].
In the foreign exchange market, USD/VND fell 0.1% to 26,080 on Friday but remained broadly unchanged for the week, trading in a narrow 26,070-26,100 range since late August and declining from the late July peak of 26,340 [1]. Portfolio inflows are expected to provide further support for the VND in the coming months, particularly as FTSE is set to upgrade Vietnam from Frontier Market to Secondary Emerging Market status effective 21 September. This upgrade could attract up to USD5 billion in equity inflows [1].
CONCLUSION
Vietnam's economy is experiencing rising inflation and a narrowing trade deficit, with strong manufacturing activity supporting its external position. The upcoming FTSE market status upgrade is expected to drive significant portfolio inflows, potentially strengthening the VND. Policymakers remain focused on balancing growth with inflation control amid evolving market conditions.