Macro Update – July 2026: GAINING TRACTION AMID CROSSCURRENTS

July macroeconomic data indicates sustained expansion, underpinned by industrial production, foreign direct investment (FDI), and international tourism. Combined with fiscal space for public investment disbursement and the State Bank of Vietnam’s (SBV) recalibration of technical barriers, gross domestic product (GDP) growth is positioned to maintain momentum through 2H26, tracking toward the government’s 10% FY2026 target.

• Manufacturing momentum accelerated in July, catalyzed by a recovery in new orders and moderating input costs. The Index of Industrial Production (IIP) advanced 14.5% YoY, bringing the 7M26 average to 11.4%. New export orders expanded at the fastest pace since July 2024, pushing raw material procurement to a nearly 4.5-year high. Concurrently, realized FDI reached US$15.20bn over the first seven months. These indicators collectively validate a structural expansion in aggregate manufacturing capacity across the sector.
• Lower global oil prices provided near-term relief, but underlying pressures remain persistent. Headline CPI declined 0.12% MoM in July as transport prices fell 2.02%, yet inflation remained elevated at 4.45% YoY and averaged 4.39% in 7M26. Core inflation increased 0.33% MoM and 4.63% YoY, while higher health-insurance contributions following the base-salary adjustment highlighted persistent domestic expenses. Accelerating production, public investment and credit growth should sustain demand in the final months of 2026, limiting the scope for broad-based monetary easing.
• Domestic consumption remains resilient, although nominal growth continues to overstate real purchasing-power gains. Retail sales rose 13.1% YoY in 7M26, accelerating from 9.3% a year earlier, but real growth was broadly unchanged at 7.5%. International arrivals reached 13.9 million, up 13.8% YoY, although this pace moderated from 22.5% in 7M25.
• The widening trade deficit and new US tariff regime create a more challenging backdrop for domestic exporters. Imports surged 34.8% YoY in 7M26, outpacing export growth of 21.7% and reversing the trade balance from a US$10.35bn surplus in 7M25 to a US$20.52bn deficit. The FDI sector retained a US$7.98bn surplus, whereas domestic enterprises recorded a US$28.5bn deficit amid weak textiles, footwear and wood-product exports.
• The SBV is prioritizing the removal of technical barriers to improve liquidity transmission mechanisms rather than pursuing broad-based monetary accommodation. As of July 27, system-wide credit growth reached 8.21% YTD. This outpaced deposit growth, which registered approximately 5.8%, consequently widening the funding gap. To alleviate this constraint, Decision 1743/QD-NHNN increased the proportion of State Treasury term deposits eligible for inclusion in the loan-to-deposit ratio (LDR) denominator from 20% to 50%. Assuming foreign exchange stability and an absence of further US Federal Reserve tightening this year, our base case expects the SBV to maintain flexible liquidity operations. This approach aims to reduce funding costs and support targeted credit expansion through 2H26.