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Most major US equity indices closed higher following the
slightly better than expected US non-farm payroll report, while
APAC and European markets were mixed. US and benchmark European
government bonds closed higher. European iTraxx was close to flat
across IG and high yield, while CDX-NA was modestly tighter. The US
dollar and WTI closed lower, while silver, natural gas, Brent,
gold, and copper closed higher on the day.
Please note that we are now including a link to the profiles of
contributing authors who are available for one-on-one discussions
through our newly launched Experts
by IHS Markit platform.
Americas
Most major US equity indices closed higher except Russell 2000
-1.0%, with the Nasdaq +0.8%, S&P 500 +0.8%, and DJIA +0.4% all
closing at new all-time record highs. It's worth noting today was
the seventh consecutive new high for the S&P 500, which is the
most since August 2020.
10yr US government bonds closed -2bps/1.44% yield and 30yr
bonds -2bps/2.05% yield (the US bond market closed early at 2:00pm
ET ahead of the Independence Day holiday weekend).
IHS Markit's AAA Tax-Exempt Municipal Analytics Curve (MAC)
rallied 2bps for 8-year and longer paper, with that same part of
the curve 4-5bps better week-over-week.
CDX-NAIG closed -1bp/47bps and CDX-NAHY -4bps/269bps, which is
flat and -1bp week-over-week, respectively.
DXY US dollar index closed -0.4%/92.23.
Gold closed +0.4%/$1,783 per troy oz, silver +1.5%/$26.50 per
troy oz, and copper +0.9%/$4.28 per pound.
Crude oil closed -0.1%/$75.16 per barrel and natural gas closed
+1.1%/$3.70 per mmbtu.
In what would be the first advanced reactor approval for the US
nuclear industry, the Nuclear Regulatory Commission (NRC) is
proposing to certify NuScale Power's 77-MW small modular reactor
(SMR) design as safe for domestic commercial use. The NRC, in a 1
July Federal Register notice, cited a previously granted assessment
that found "no significant environmental impact" from certifying
NuScale's reactor as well as the agency's positive safety
evaluation of the technology from August 2020. The agency's
proposed rule is giant step forward for NuScale, leaving only a
final regulatory hurdle—final NRC approval—before it
becomes the first US SMR vendor able to take its reactor to market.
As further indication of the market's optimism about NuScale, the
company announced on 30 June that it has finalized an investment
agreement with GS Energy North America Investments, the US entity
of the South Korean leading energy services provider. As part of a
long-term strategic relationship established under the agreement,
GS Energy will provide a cash investment in NuScale Power and
support deployment of NuScale plants. (IHS Markit Climate and
Sustainability News' Kevin Adler)
US nonfarm payroll employment rose 850,000 in June, about as we
had assumed but above the consensus estimate. The unemployment rate
rose 0.1 percentage point to 5.9%; this was unexpected. The broad
contours of the June employment report are consistent with
continued healing in labor markets, but not all systems are "go."
(IHS Markit Economists Ben
Herzon and Michael
Konidaris)
The headline gain in payrolls was driven by large increases in
leisure and hospitality (343,000) and in education services (public
and private; 268,000). The payroll gain outside of these sectors
(239,000) was unspectacular.
The private workweek was revised lower for May and declined 0.1
hour in June to 34.7 hours. The workweek remains elevated relative
to the pre-pandemic norm (34.4 hours) but is under downward
pressure, as the shorter-workweek jobs that were lost to the
pandemic return.
Average hourly earnings (AHE) rose 0.3% in June, as we
expected. Moderate gains in AHE reflect a balance between a boost
from acceleration in some industries and drag from a rising share
of lower-wage employment, as lower-wage jobs that were lost to the
pandemic return.
The increase in the unemployment rate mainly reflected a
reported small decline in civilian employment (from the Household
Survey). The labor-force participation rate was unchanged at 61.6%.
If expiration of enhanced unemployment benefits is to boost
labor-force participation, we may start to see those effects in the
July employment report.
US manufacturers' orders rose 1.7% in May, about as expected.
Shipments rose 0.7% and inventories rose 0.9%. Revisions to core
orders and shipments through May were modest. (IHS Markit
Economists Ben
Herzon and Lawrence Nelson)
Both orders and shipments remain in line with a firming trend
and have both exceeded their pre-pandemic levels.
Some of the recent strength in (nominal) orders and shipments
reflects accelerating prices in the manufacturing sector.
The Producer Price Index (PPI) for net output in the
manufacturing sector rose at a 21.5% annual rate over the six
months ending in May.
Orders and shipments of core capital goods remain elevated. In
May, orders for core capital goods were 16.2% above the February
2020 level while shipments were up 12.9% over the same period.
Despite supply-chain constraints, manufacturers continue to
build inventories, and at all stages of production. Materials and
supplies, work in process, and finished goods inventories have all
firmed in recent months.
The US trade deficit (nominal) widened by $2.1 billion to $71.2
billion in May, the second-largest reading on record, as imports
rose more than exports. The real goods deficit increased by 3.1
billion chained (2012) dollars—petroleum products accounted for
nearly all of the increase. (IHS Markit Economist Patrick
Newport)
Nominal exports of goods and services increased 0.6%; goods
exports grew 0.3%, but real goods exports (which matter for
growth), dropped 2.0%, dragged down by a 3.9% drop in real
industrial supplies. Real exports in May stood just below their
pre-pandemic level. They should rise above that level in the
upcoming months as economies across the world pick up steam.
Nominal imports increased 1.3%, with goods imports rising 1.2%
in nominal terms, but unchanged after adjusting for inflation.
Averaged over the prior three months, real imports stand 10% higher
than in the fourth quarter of 2019. The three-month average for
real consumer goods is a whopping 24% above its fourth-quarter 2019
reading.
Nominal imports from mainland China skyrocketed by $10.9
billion in March, only to plunge by $6.0 billion and $5.2 billion
in April and May. These erratic swings may simply be a matter of
the seasonal adjustment factors giving distorted readings because
of the pandemic.
After a 17.0-million-unit seasonally adjusted annual rate
(SAAR) reading in May 2021, the SAAR for June is estimated to have
dropped to between 15.2 million and 15.7 million units. Stronger
than in June 2020 (13.0 million units), the frenetic pace of the
past three months was slowed by inventory issues in June 2021, as
expected. On a volume basis, US light-vehicle sales increased 16.4%
y/y in June. A result of the progressively falling inventory levels
and a possible pull-forward effect in the torrid pace of auto
demand over the previous three months, light-vehicle sales dropped
significantly in June, confirming our assumption that monthly sales
levels would moderate. Although we expect an improvement in
inventory during the second half of the year, not much is likely to
be seen in July or August. IHS Markit forecasts full-year
light-vehicle sales will reach 16.8 million units in 2021. (IHS
Markit AutoIntelligence's Stephanie
Brinley)
Autonomous vehicle (AV) system developer Ghost Locomotion has
raised USD100 million in a Series D funding round, according to a
company statement. Returning investors Sutter Hill Ventures and
Founders Fund as well as new investor Coatue participated in the
round. The company plans to use the capital for research and
development (R&D) as it continues to develop its crash
prevention technology to bring AVs to highways. Ghost Locomotion is
a US-based startup that was founded in 2017 by John Hayes and
Volkmar Uhlig. The company focuses on developing crash prevention
technology which uses artificial intelligence and physics to track
objects, regardless of speed, size, or type. Unlike existing
systems, Ghost Locomotion does not need to recognize an obstacle to
avoid it. (IHS Markit Automotive Mobility's Surabhi Rajpal)
The US processor McCormick increased its Q2 sales (March-May)
by 11% year-on-year to 1.5 billion, bringing H1 sales to USD3.3
billion, 16% more y-o-y thanks to robust flavor sales after the
hostelry industry is gradually recovering. (IHS Markit Food and
Agricultural Commodities' Jose Gutierrez)
Gross profit increased by 6% to USD614.6 million in Q1
Consumer segment fell by 4.7% due to impact of foreign exchange
currency and a slight fall in home cooking trends. However,
McCormick explained that home cooking data is still higher than
before the pandemic.
Flavor segment sales increased by 7.6% between March-May due to
Horeca recovery, especially in the EU.
Operating income in 2021 is expected to grow by 6-8% from
USD1.0 billion in 2020. In addition, transaction and integration
expenses related to the Cholula and FONA acquisitions may total
USD42 million in 2021.
Canada's merchandise trade balance reached a deficit of $1.4
billion in May, while April's surplus was revised down to $462
million. (IHS Markit Economist Evan Andrade)
Nominally, exports fell 1.6% month on month (m/m) to $49.5
billion and imports rose 2.1% m/m to $50.9 billion.
Owing to the strong appreciation of the Canadian dollar between
April and May, the export volume fell 3.5% m/m and import volume
rose 2.9% m/m.
There was little change in the service trade balance,
registering a deficit of $384 million.
The broad decline across export product categories was led by
an 8.8% m/m drop in consumer goods. Within this category, an early
start to the snow crab season—owing to environmental
concerns—meant that seafood exports fell by $467 million in
seasonally adjusted terms.
Peruvian politics have battered the country's currency so far
in 2021, highlighting investor concerns over the interventionist
agenda of far-left presidential candidate Pedro Castillo. Portfolio
investment could leave the country en masse if Castillo takes
office and succeeds in carrying out major reforms, but the baseline
outlook views moderation as the most likely outcome. (IHS Markit
Economist Jeremy Smith)
The choice between Pedro Castillo and conservative candidate
Keiko Fujimori in Peru's second-round presidential election, held
on 6 June, has raised fundamental questions over the future of the
Peruvian economic model and the role of the state in the
economy.
Investor confidence and foreign-exchange markets have been
shaken by Castillo's vision for a much more interventionist public
sector. Castillo's current policy proposals include revisions to
the economic chapter of the country's 1993 Constitution and
renegotiation of extractive-sector contracts (see Peru: 30 June
2021: Peru's presidential election). These proposals have been
subject to frequent changes, only increasing uncertainty.
The path of the Peruvian sol in recent months, illustrated in
the chart below, shows the high degree of market sensitivity in
response to political events, especially polls and vote counts
pointing towards a likely Castillo victory.
Europe/Middle East/Africa
Major European equity indices closed mixed; Germany +0.3%,
UK/France/Italy flat, and Spain -0.3%.
10yr European govt bonds closed higher; France/Italy/Spain/UK
-3bps and Germany -4bps.
iTraxx-Europe closed flat/46bps and iTraxx-Xover -2bps/227bps,
which is flat and +2bps week-over-week, respectively.
Brent crude closed +0.4%/$76.17 per barrel.
The renewable arm of French-state-owned multinational utility
EDF Group has launched a 50-MW battery storage system for electric
vehicle (EV) charging spots, the first of "up to 40" so-called
SuperHubs intended to help meet the UK's net-zero goals. The
battery system installed for the city of Oxford, England, is part
of Energy SuperHub Oxford (ESO), one of three grid-scale and
domestic battery demonstration projects funded in part by the UK
Government's innovation agency, Innovate UK. It was built by EDF
Renewables' newly acquired battery developer, Pivot Power, and will
supply energy for EV charging stations (initially for a parking lot
with 38 charging points) as well as domestic heat pumps, and smart
energy management technologies in the city. Assets like these may
become key to improving the flexibility of the electric grid as
decarbonizing heating and transport picks up pace to meet the
nation's net-zero carbon emissions deadline in 2050. The government
currently has several grant programs targeting EV and domestic
heating consumers. The Green Homes Grant, which the parliament's
Environmental Audit Committee called "botched," was canceled in
March. (IHS Markit Climate and Sustainability News' Cristina
Brooks)
On 30 June the European Banking Authority (EBA) published its
latest quarterly risk dashboard which incorporates data for the
first quarter from a sample of 161 European banks. (IHS Markit
Economist Brian
Lawson)
Risk levels remain at the highest level for asset quality,
market risk and profitability, but with the reversal in bond yields
and improvement in profitability over the last quarter, are
projected to improve in two of these three areas, but future asset
quality is causing growing concern.
Within the sample, 70% of banks expect deterioration of asset
quality in the SME sector, with 65% and 55% forecasting worsening
in consumer credit and commercial real estate exposures. This does
not yet appear in non-performing loans (NPL) data, with the average
NPL ratio falling 10 basis points to 2.5%, but this is heavily
masked by ongoing forbearance measures.
The sector remains strongly capitalized: the sample recorded a
CET1 capital ratio of 15.6%, with its leverage ratio at a healthy
5.6%.
The most encouraging development is that sector profitability
improved significantly, reaching 7.6% ROE in the first quarter of
2021 versus 1.9% in the preceding quarter.
The year-on-year (y/y) rate of increase in the eurozone
producer price index (PPI) continued to surge in May, rising by two
percentage points to 9.6%, the highest rate in the series' history,
although slightly below the market consensus expectation (of 9.5%,
according to Reuters' survey). (IHS Markit Economist Ken
Wattret)
Energy prices remained pivotal to the acceleration, with the
inflation rate jumping by over four percentage points to 25.6%,
also a record high.
Although strong base effects stemming from the declines in
crude oil prices during the first wave of the COVID-19 virus
pandemic from March to May 2020 have contributed to the recent
surge in eurozone PPI inflation, this is only part of the
story.
Energy prices rose by 2.1% month on month (m/m) in May,
following several prior months of strong gains.
Moreover, eurozone PPI inflation excluding energy prices has
also soared. May's 4.9% rate was also a record high, with various
business surveys pointing to further increases in the months ahead
(discussed below), including IHS Markit's PMIs.
In addition to energy, May's PPI data also revealed continued
strength in prices of intermediate goods, which rose by 1.8% m/m
following a similar gain in April (see table below). The y/y rate
of increase rose to 9.2%, yet another record high.
The European Food Safety Authority (EFSA) is seeking
genotoxicity data on artificial sweeteners, including the widely
used, aspartame, as part of the re-evaluation program for food
additives already on the market when the EU regulation (on food
additives 1333/2008) took effect on 20 January 2009. Artificial
sweeteners are the final group of food additives to be reviewed
since they were the last to be assessed before the 2008 regulation
replaced the EU's old additives legislation. The sweeteners review
and the additives re-evaluation program itself were supposed to
have been completed by the end of 2020 but the sheer volume of work
and missing data means delays. In a 30 June call for data, EFSA
explains that it has already started the reassessment work but
during the preliminary assessment of the available data on some
substances its Food Additives and Flavorings (FAF) Panel decided
additional information was needed. The call for data spells out
what the Panel needs, whether from published, unpublished or newly
generated studies. (IHS Markit Food and Agricultural Policy's Sara
Lewis)
Uber has partnered with TotalEnergies to accelerate electric
mobility in France, according to a company statement. Uber aims to
increase its electric vehicle (EV) fleet in France to 50% of its
total fleet by 2025. To achieve this, Uber drivers will be provided
with TotalEnergies cards that gives them access to charging points.
Uber drivers will have access to 20,000 charging stations by the
end of this year and more than 75,000 by 2025. (IHS Markit
Automotive Mobility's Surabhi Rajpal)
According to its preliminary estimate, the national statistical
office (ISTAT) reports that Italy's 12-month rate of consumer price
index (CPI, harmonized) inflation increased to 1.3% in June from
1.2% in May. (IHS Markit Economist Raj
Badiani)
The energy component of the CPI index climbed notably in June,
up by 14.4% year on year (y/y). This was triggered by global crude
oil prices rising by 81.3% y/y to average USD73.01 per barrel (pb)
that month.
Transport and housing, water, electricity, gas and other fuel
prices increased by 4.8% y/y and 5.9% y/y, respectively.
Less restrictive COVID-19 containment measures on the
hospitality and leisure sectors helped to revive restaurant and
hotel prices, which were up by 1.5% y/y during June, a notable
step-up from the 0.1% y/y gain in May.
Core inflation (all items excluding energy and unprocessed
food) rose marginally to 0.3% in June from 0.2% in May.
Swiss manufacturer Lonza has announced the completion of
divestment of its specialty ingredients division to the Bain
Capital (US) and Cinven (UK) investment partnership for an
enterprise value of CHF4.2 billion (USD4.5 billion). The initial
agreement had been announced on 8 February. Bain Capital and Cinven
have considerable experience in manufacturing-sector investment.
Lonza's former specialty ingredients business employs about 2,800
people across 17 manufacturing sites around the world, and is a
leader in provision of disinfectants and antiseptics for use in
professional and personal care settings, alongside customized
manufacture of specialty chemicals and ingredients for use in
electronics, aerospace, food, and agrochemicals. (IHS Markit Life
Sciences' Janet
Beal)
The Executive Board of the Swedish central bank (the Riksbank)
in its July monetary policy meeting left the key policy interest
rate, the repo rate, unchanged at 0%. The policy rate has been at
this level since December 2019, when it was increased by 25 basis
points. (IHS Markit Economist Venla
Sipilä)
Similarly, the Riksbank also announced that its asset purchase
program will remain intact within the envelope of SEK700 billion
(USD81.6 billion) during the fourth quarter of 2021. Stressing that
sustainability is needed in Swedish monetary policy, it noted that
it that continues to purchase securities and offer liquidity within
all the launched channels. These include bond purchases totaling
SEK68.5 billion.
The board expects the interest rate to remain unchanged until
the end of the Riksbank's forecast horizon, which currently extends
until the end of the third quarter of 2024. It also intends to
maintain its holdings in their entirety at least until the end of
2022.
The board notes that while the spread of the COVID-19 virus has
eased and economic recovery is taking place in several regions, the
pandemic is not over, with new variants adding to risks. Inflation
pressures are still modest, and expansionary monetary policy is
still necessary in Sweden to assist economic recovery and ensure
inflation reach its target (2%) on a sustainable basis.
The latest inflation data from Statistics Sweden show that the
consumer price index with a fixed interest rate (CPIF; CPI with a
fixed interest rate) in May eased to 2.1% year on year (y/y) from
2.4% y/y in April. Housing costs were pushed up owing to the rising
prices of electricity, and these presented the biggest contribution
to inflation. In addition, increased fuel prices pushed up
transport prices, while clothing prices also increased.
The total unemployment rate in Saudi Arabia went down from 7.4%
in the final quarter 2020 to 6.5% in the first quarter 2021,
according to the General Authority of Statistics (GASTAT). Although
not fully reaching pre-crisis levels yet, the total unemployment
rate, including Saudi nationals and non-nationals, has been
trending down steadily from the peak of 9.0% reached in the second
quarter 2020 when the impact of COVID-19-related lockdown measures
hit the economy. (IHS Markit Economist Ralf
Wiegert)
Unemployment of Saudi nationals even fell below pre-crisis
levels. At 11.7%, the rate edged down below the previous cyclical
low of the first quarter 2020 (11.8%). This was due to a steep fall
of unemployment among female workers, which had been close to 30%
before the crisis. The rate briefly shot up to 31.4% when the
crisis hit the labor market in the second quarter, but it
subsequently fell and was only 21.2% in the first quarter
2021.
The female unemployment rate is still high compared with male
Saudis, but it is an interesting development, especially as the
female labor participation rate has been increasing at the same
time, from 20.5% in the first quarter 2019 to 32.3% in the first
quarter 2021. It should be noted that the Saudi Vision 2030 pledges
to raise the female labor market participation rate to over
30%.
The Bank of Botswana has published its June 2021 Financial
Stability report highlighting moderate credit risks but increased
risks to asset quality deterioration. Overall, credit growth slowed
to 1.6% year on year (y/y) in March compared with annual growth of
10.7% y/y in March 2020. A drop in loans to the corporate sector
was the main contributor to the slowdown in overall credit growth.
Corporate-sector loans experienced a decline of 6.1% y/y in March
compared with annual growth of 4% y/y over the same month in 2020.
This drop resulted from a "significant reduction" in credit to
parastatals, mining (-38.8% y/y, manufacturing (-41.7% y/y), and
agriculture (-10.2% y/y). Therefore, corporate credit as a share of
total credit decreased to 34% in March from 37% in March 2020,
while the household sector accounted for 66% of total credit in
March, up from a 63% share in March 2020. (IHS Markit Banking
Risk's Ronel Oberholzer)
Asia-Pacific
APAC equity markets closed mixed; Australia +0.6%, India/Japan
+0.3%, South Korea flat, Hong Kong -1.8%, and Mainland China
-2.0%.
Great Wall Motor (GWM) has unveiled the latest smart vehicle
solutions as part of its Smart Coffee 2.0 strategy, reports China
Daily. Mu Feng, vice-president of research and development
(R&D) at GWM said, "The Smart Coffee 2.0 can enable vehicles to
think, make their decisions and get upgraded." The automaker
showcased chassis-by-wire technology that it claims is a
prerequisite for autonomous operations because it is controlled by
electric signals to steer or brake. This eliminates the need for
drivers to do the task manually using mechanical linkages in
traditional chassis. The company also revealed new electric and
electrical architecture as well as upgrades in on-board functions,
smart driving, and smart services. GWM also said that it expects
40% of its vehicles sold in 2025 to be preinstalled with high-level
autonomous functions. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
GAC Motor is planning to work closely with Chinese ride-hailing
app company Didi Chuxing (DiDi) and Chinese telecom giant Huawei on
autonomous vehicle (AV) technologies. By 2024, the companies aim to
mass-produce Level 4 autonomous vehicles (AVs), which can operate
almost entirely without human input. The vehicles will use GAC
design and manufacturing capabilities and autonomous software from
DiDi and Huawei. (IHS Markit Automotive Mobility's Surabhi
Rajpal)
Sea freight rates have risen while schedule reliability remain
poor in all of 2021 as important ports and regions continue their
battle of congestion. On Asia to North America West Coast, at its
peak, vessel arrivals that were seven-13 and 14-20 days late was
higher than at the height of the 2015 US West Coast labor dispute.
In January-May 2021, about 700 vessel arrivals were over a week
late, of which 340 vessel arrivals were more than 14 days late,
with 132 of the vessel arrivals being more than 21 days late,
according to Sea-Intelligence ApS. (IHS Markit Food and
Agricultural Commodities' Hope Lee)
For comparison, from January 2012 to December 2020, 1,535
vessel arrivals were more than a week late, 330 were more than two
weeks late, and a combined 104 vessel arrivals were over 21 days
late.
On Asia-North Europe, 461 vessel arrivals were more than seven
days late in January-May 2021, of which 134 were more than 14 days
late, and 30 were more than 21 days late.
Schedule reliability has been largely consistent these past few
months, albeit at a much lower level than the industry stakeholders
would have preferred. In May 2021, schedule reliability declined by
-0.2 percentage points month-on-month to 38.8%. On a year-on-year
level, schedule reliability was down a massive -36.0 percentage
points.
LG Electronics and Magna yesterday (1 July) launched a new
joint venture (JV), LG Magna e-Powertrain, reports the Yonhap News
Agency. LG owns 51% of the new company and Magna holds the
remaining 49% stake. Headquartered in Incheon (South Korea), LG
Magna e-Powertrain will employ about 1,000 workers to produce
powertrain products, such as motors and inverters, for electric
vehicles (EVs). It will have two subsidiaries - LG Magna Nanjing
e-Powertrain Vehicle Components Company and LG Magna e-Powertrain
USA Incorporated. LG has previously said that it expects the JV to
post annual sales growth of 50% from 2022 to 2025. (IHS Markit
AutoIntelligence's Jamal Amir)
SHI received the approval in principle (AIP) from DNV for its
solid oxide fuel cell (SOFC) powered LNG carrier. The new design,
jointly developed with Bloom Energy, a US fuel cell maker, replaces
the ship's propulsion engine with an SOFC. DNV has also issued an
AIP for SHI's fuel cell powered crude oil tankers back in 2019.
(IHS Markit Upstream Costs and Technology's Jessica Goh)
Charge CCCV (C4V), a lithium-ion battery technology and
manufacturing company based in New York (United States), has
announced an investment of INR40.15 billion (USD538 million) in the
battery manufacturing sector in Karnataka (India), reports India
Today. The company, which manufactures lithium-ion batteries for
use in electric vehicles (EVs) and portable electronics, plans to
set up a 5-gigawatt-hour (GWh) plant in the Indian state of
Karnataka, and to start work in 2022. Karnataka state Industries
Minister Jagadish Shettar said, "C4V is a leading company with over
a hundred patents and lithium battery cell manufacturing and
technology. The company's investment of Rs 4,015 crore [INR40.15
billion] in the state will create more than 4,000 jobs." He added,
"We have pioneered the future of green with the recent changes in
the latest Electronic System Design and Manufacturing Policy (ESDM)
policy and the Electric Vehicle Policy in the state. The cell
manufacturing sector will play an important role in reducing
environmental pollution." (IHS Markit AutoIntelligence's Tarun
Thakur)
Vietnam has been one of the world's fastest growing emerging
markets in the past decade, boosted by strong foreign direct
investment inflows into its manufacturing sector. The pace of
economic growth slightly exceeded 7% in both 2018 and 2019. (IHS
Markit Economist Rajiv
Biswas)
Rapid growth of manufacturing exports and large new inflows of
foreign direct investment have been important growth drivers for
Vietnam, notably driven by rapid expansion in the textiles and
electronics sectors. Total electronic and electrical manufacturing
exports accounted for 33% of total merchandise exports in 2019,
with textiles, clothing and footwear accounting for a further
19.4%.
Total foreign direct investment inflows reached USD 20.4
billion in 2019, up 6.7% year-on-year, driven by strong investment
by multinationals in establishing new manufacturing production
facilities in Vietnam. Samsung has been a key investor, with total
foreign direct investment into Vietnam of around USD 17 billion in
the decade to 2018. Vietnam has become the biggest foreign
production hub for Samsung Electronics, which booked USD 66 billion
of sales in 2018 out of its Vietnamese operations, which was
equivalent to around 28% of Vietnam's GDP. Around 50% of Samsung's
smartphones and tablets are produced in Vietnam and exported
globally. Samsung Vietnam has also built its largest R&D center
in Southeast Asia near Hanoi.
Economic growth momentum moderated significantly in 2020, due
to the impact of the COVID-19 pandemic. For calendar 2020, the
Vietnamese economy grew by 2.9% y/y, compared with a 7.1% GDP
growth rate in calendar 2019.
Output and new orders both decreased at the sharpest rates
since the first outbreak of the pandemic in early-2020, while firms
scaled back their employment and purchasing activity accordingly.
The pandemic also impacted supply chains, resulting in a
near-record lengthening of delivery times. For example, four
industrial parks in Bac Giang province in northern Vietnam were
temporarily closed in late May, due to outbreaks of COVID cases,
which also impacted on some manufacturing facilities of Foxconn and
Samsung.
Posted 02 July 2021 by Chris Fenske, Head of Fixed Income Research, Americas
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