HCM City (VNA) – This year, Vietnam hassuffered its longest streak of falling exports in more than a decade. However, thereare concrete signs that Vietnam’s exports are set to recover in the fourthquarter driven by a bottoming out of the US inventory cycle and by anacceleration in multinational firms’ movement of manufacturing to Vietnam,according to VinaCapital's Chief Economist Michael Kokalari.

Kokalari said in a recently-released report that theUS is Vietnam’s biggest export market, accounting for about one-quarter ofVietnam’s total exports.

“But US retailers and other consumer productscompanies bought too many Made in Vietnam/Made in Asia products last year inanticipation of a post-COVID re-opening boom that never came. Instead of buying more manufactured productswhen COVID lockdowns lifted, US consumers splashed out on services like traveland going out to eat. To make mattersworse, companies had “over ordered” products from factories in Asia in responseto supply-chain issues and shortages, so the net result was that theinventories of companies like Walmart, Target, and Nike ballooned by over 20%yoy in late-2022,” he said.

US retailers slashed orders at factories in Vietnamthis year in response to their bloated inventories, which explains whyVietnam’s exports to the US fell by more than 20% year-on-year in the firstseven months of this year after having surged by more than 20% in the sameperiod last year. However, US firms havebeen aggressively de-stocking throughout 2023.

Kokalari noted that allof this links closely with Vietnam’s export figures. The aggressive inventoryreduction efforts of firms like Walmart and others drove the plunge inVietnam’s exports in the first quarter, but that destocking is now approachingits conclusion, and Vietnam’s exports to the US increased by nearly 7%month-on-month in July. 

Consequently,the year-on-year decline in Vietnam’s exports to the US improved from a 26%year-on-year drop in June to a 14% year-on-year decline in July, which helpedreduce the fall in Vietnam’s total exports from 12% year-on-year in the first sixmonths to 2% year-on-year in July.

Finally,in addition to a cyclical recovery in exports to the US, Vietnam is alsobenefitting from companies moving their production to Vietnam. All Asian exportersshould be benefitting to some degree from a de-stocking-driven export recovery,but Vietnam is the only country in Asia that is also significantly benefittingfrom the establishment of new factories in the country.

“Weare confident that the improvement in Vietnam’s exports will accelerate as 2023progresses based on several reliable leading indicators, including: Vietnam’simport growth finally caught up to export growth on a sequential basis in July,after having lagged significantly for much of 2023, the ongoing decline inexport orders for Vietnam’s factories finally eased in July, and firms’inventories of raw materials increased in July for the first time sincelate-2022," said Kokalari.

Accordingto the report, over one-half of Vietnam’s exports to the US are of high-techproducts like consumer electronics, and smartphones, and of garments and footwear, with a range of other products such as furniture and agriculture accountingfor the rest.

Earlier this year, global sales of personal computers werefalling by more than 30% year-on-year (Vietnam’s exports of high-tech productsfell by more than 10% year-on-year in the first half), but the decline in PCand consumer electronics sales has now ended according to senior Walmartexecutives, who noted a “modest improvement” in consumer electronics salesrecently. 

Consequently, Vietnam’s exports of such items surgedfrom a 3% year-on-year decline in June to a 28% year-on-year increase in July, making it the single biggest contributor to the rebound inVietnam exports last month, and helping propel Vietnam’s exports to above 30billion USD for the first time this year.

Next,Vietnam is the world’s second biggest smartphone exporter, so new productlaunches can have a major impact on exports and manufacturing activity (Samsungalone accounts for a quarter of the country’s total exports). 

Finally, garments and footwear account for nearly 20% of Vietnam’s exports and exports of thoseproducts to the US are unlikely to rebound until next year because the progressof retailers in the US destocking such products has been much slower than theprogress in running down inventories of consumer electronics products. However, garment exports to the Republic ofKorea (RoK) and Japan soared by about 30% month-o-month in July as demand forclothing rebounded in both countries, according to local consumer sentimentsurveys.

The report pointed to concrete signs that Vietnam’sexports are set to recover in the fourth quarter, driven primarily by abottoming out of the US inventory cycle, but also by an acceleration in therelocation of manufacturing to Vietnam. 

This rebound is likely to help lift Vietnam’s GDPgrowth from below 5% in 2023 to 6.5% in 2024, which in-turn should help propelan increase in the earnings growth of the VN-Index (VNI) from 6% in 2023 toover 20% in 2024, which should support the VN-Index in the months ahead, said Kokalari./.