VinaCapital: Vietnam's Export Downturn Reaches its Lowest Point

Vietnam has experienced its longest period of declining exports in over a decade, but there is optimism for a recovery in the fourth quarter. VinaCapital’s Chief Economist, Michael Kokalari, attributes this recovery to the bottoming out of the US inventory cycle and an accelerated movement of multinational firms’ manufacturing operations to Vietnam.

The US serves as Vietnam’s largest export market, accounting for approximately one-quarter of its total exports. However, US retailers and consumer products companies had overpurchased Made in Vietnam/Made in Asia products last year in anticipation of a post-Covid reopening boom that never materialized.

As a result, US retailers significantly reduced their orders from Vietnamese factories this year to address their bloated inventories. Consequently, Vietnam’s exports to the US fell by over 20% year-on-year in the first seven months of this year, following a surge of over 20% in the same period last year. However, US firms have been actively destocking throughout 2023.

The year-on-year decline in Vietnam’s exports to the US improved from a 26% drop in June to a 14% decline in July, contributing to a reduction in the overall year-on-year export decline from 12% in the first six months to 2% in July.

In addition to the cyclical recovery in exports to the US, Vietnam is benefiting from the relocation of manufacturing operations to the country. While all Asian exporters are experiencing some level of export recovery driven by destocking, Vietnam stands out as the only country significantly benefitting from the establishment of new factories.

Earlier this year, global sales of personal computers and high-tech products experienced significant year-on-year declines. However, according to senior Walmart executives, the decline in PC and consumer electronics sales has now ended, with a recent “modest improvement” noted in consumer electronics sales. Vietnam, as the world’s second-largest smartphone exporter, is particularly impacted by new product launches, with Samsung alone accounting for a quarter of the country’s total exports.

Garments and footwear, which make up nearly 20% of Vietnam’s exports, are unlikely to rebound in exports to the US until next year. The progress of US retailers in destocking these products has been slower compared to the progress in reducing inventories of consumer electronics products.

Overall, there are concrete signs pointing to a recovery in Vietnam’s exports in the fourth quarter, driven by the US inventory cycle reaching a bottom and the ongoing shift of manufacturing activities to Vietnam.