Macro Update – January 2026: BUILDING MOMENTUM

Entering FY2026, the government set an aggressive 10% GDP growth target (Resolution 01/NQ-CP). This elevated objective necessitates a strategic pivot toward domestic growth engines. The roadmap prioritizes the consolidation of state-owned economic foundations, the revitalization of the private sector, and the formalization of the shadow economy (specifically SMEs and household businesses) to broaden the tax base and enhance transparency.

• Retail momentum shows signs of fatigue: Domestic consumption remains a key pillar of the growth narrative, with January retail sales reaching VND632.4tn (+2.6% MoM; +9.3% YoY).
• Disinflationary trends take hold: Headline CPI moderated to +2.53% YoY (vs. +3.48% in Dec 2025) and edged up just 0.19% MoM. The deceleration was underpinned by cooling food and catering costs (+1.31% YoY) and deepening deflationary pressure in the energy sector, with fuel prices contracting 3.76% YoY.
• Strong sentiment in manufacturing activities masks base effects: The industrial sector posted a statistically striking headline figure, with the IIP surging +21.54% YoY. We caution that this print is heavily distorted by the low base effect of early 2025, a period dampened by anxieties over US tariff risks. The PMI reached 52.5, supported by the highest employment creation in 19 months and sustained output expansion, signaling genuine operational recovery beyond the statistical noise.
• A swing to trade deficit: January recorded a trade deficit of US$1.78bn (January 2025: +US$3.17bn) where domestic sector remained the primary drag, posting a US$3.4bn deficit. While exports expanded an impressive 29.7% YoY to US$43.19bn, they contracted 2% MoM, reflecting seasonal cyclicality.
• Divergence between commitment and disbursement: Total registered FDI in 01/2026 USD 2.58 billion (-40.4% YoY), while disbursed FDI capital amounted to USD 1.68 billion (+11.3% YoY).
• Accelerated public spending: Fiscal consolidation remains on track with robust revenue collection, while expenditure execution shows improvement over historical trends. Revenue reached VND370.1tn (+20.4% YoY), securing 14.7% of the annual estimate.

In January, the State Bank of Vietnam (SBV) actively reduced the outstanding volume of reverse repurchase agreements (reverse repos/T-bills) via open market operations (OMO), capitalizing on a stable exchange rate environment supported by robust remittance inflows. However, liquidity conditions deteriorated significantly in late January and early February. This tightening was driven by a surge in demand for physical cash holdings, coinciding with a gradual reduction in deposit auctions by the State Treasury.

• During the first two days of February, liquidity pressure intensified to concerning levels, with the overnight interbank rate averaging 17%. The primary driver was seasonality, specifically the heightened demand for cash holding among residents ahead of the Lunar New Year, compounded by the corporate tax payment cycle.
• A contributing factor stems from the structural funding composition of the interbank system. The pressure to deliver on credit growth targets in 2025 has exposed the system’s reliance on wholesale funding channels—specifically OMO and State Treasury deposits—as deposit mobilization from residents and economic institutions has failed to keep pace with lending expansion.
• The SBV responded with swift intervention, executing large-scale open market operations valued at over VND160tn across just three sessions between February 2 and 3, alongside three USD-VND swap sessions totaling US$4bn. Concurrently, the State Treasury resumed deposit auctions, injecting more than VND160tn from February 4 to 9.
• Looking toward the first half of 2026, we anticipate that liquidity pressures will gradually subside in the post-Tet period. While interest rates are projected to moderate in the second quarter of 2026, they are likely to remain established at a higher base relative to 2025, as the structural imbalances in bank funding relative to credit demand remain unresolved. Nevertheless, a favorable exchange rate environment is expected to persist, providing the SBV with the necessary headroom to expand credit growth limits in support of the ambitious 10% GDP growth target for the year.