Daily Update June 15, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Vietnam on The Path to Growth

Geopolitical analysis has an affinity for simple narratives. Superpowers, frequently in conflict and wielding power within circles of influence, rise and fall. But the fact remains that most of humanity exists outside of these tidy narratives. Countries that forge trade agreements across geopolitical fault lines can be more economically successful due to their ability to sell into multiple markets. Vietnam is an example of a country experiencing success in navigating multilateral trade.

Like the rest of the world, Vietnam’s economy declined under the COVID-19 pandemic. When lockdowns were implemented in mid-2021, GDP growth in Vietnam slipped to 2.6%, following 2.9% growth in 2020, the first year of the pandemic. However, Vietnam is one of several export-dependent emerging market economies that roared back in 2022. The country’s real GDP grew 8.0% year over year in 2022 as domestic demand and manufacturing export production returned. For the first quarter of 2023, Vietnam’s GDP growth moderated to 3.3% due to a slowdown in demand from leading export markets such as the US and EU. Vietnam's exports fell 13% in the first four months of 2023 compared to the year-ago period. The manufacturing sector in Vietnam has also been plagued by repeated power outages due to a lengthy heatwave.

Despite the headwinds, Vietnam is well-positioned for growth. According to S&P Global Market Intelligence, Vietnam’s GDP growth is forecast to grow at about 6.5% in 2023, with sustained strong growth of about 6.7% per year from 2024 to 2026. Vietnam’s projected growth is driven by its status as a low-cost manufacturing hub and an alternative to China, where rising wages, supply chain concentration and geopolitical issues are creating concerns. Vietnam enjoys a large, well-educated workforce and an openness to foreign direct investment. 

Vietnam’s greatest relative strength may be its growing network of free trade agreements. Vietnam is currently party to the Association of Southeast Asian Nations Free Trade Area, Comprehensive and Progressive Agreement for Trans-Pacific Partnership, EU-Vietnam Free Trade Agreement and Regional Comprehensive Economic Partnership. These agreements and organizations give Vietnam a wide range of export markets without tying Vietnam to other countries’ geopolitical leadership. 

Still, headwinds remain. Many global technology manufacturers have expressed an interest in moving out of China into Vietnam, among other countries, but shifting supply chains will be difficult and inefficient, according to S&P Global Ratings. Some Taiwanese electronic manufacturing services companies have existing facilities in Vietnam and may be looking to expand their presence. Property developers in Vietnam have also been hit with deteriorating credit quality in the wake of the pandemic. According to S&P Global Ratings, this may impact access to funding and lead to a crisis in investor confidence.

Today is Thursday, June 15, 2023, and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

US Charter Schools Sector Fiscal 2022 Medians: Schools Hold Strong Amid Rising Costs

US charter schools' median financial performance remained healthy in fiscal 2022 but moderated somewhat from an extraordinary fiscal 2021 — largely because of expense pressures from greater investments in academic programming and rising inflation that affected salary, utilities and supply costs. Median enrollment increased modestly in fall 2021, representing a new high watermark for S&P Global Ratings’ published medians, and preliminary data for fall 2022 indicate additional growth for the sector. California still leads the pack by number of rated schools, with New York adding the most new ratings over the past year.

—Read the report from S&P Global Ratings

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Capital Markets

Credit Suisse's Investment Bank Offers UBS Growth Opportunities In US, Asia

Credit Suisse Group AG's investment bank will provide UBS Group AG with opportunities to bolster its franchise and strengthen its competitive position in the US and Asia, analysts said. Restructuring the investment bank, which has been the source of most of Credit Suisse's financial and reputational woes in recent years, is one of the biggest challenges facing UBS following the closing of its acquisition of its cross-town rival June 12. But the bank is well positioned to take that task on, as its own healthy franchise will help it navigate the costly downsizing of the business, retaining key talent in regions and business lines that support its strategy, the analysts said.

—Read the article from S&P Global Market Intelligence

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Global Trade

Ukraine Counter-Attack Shows Permanent Shift In Commodity Flows

Ukraine's military has launched its long-awaited counter-attack to evict Russia, the world's second-largest oil exporter, from its territory, with battles raging in the Donbas area this June potentially deciding the fate of the conflict which began when Moscow's forces invaded last February. Oil and gas prices have shrugged off any concerns over the inherent geopolitical risks of war, suggesting commodity flows have made a permanent readjustment. Dated Brent assessed by Platts — part of S&P Global Commodity Insights — peaked at $137.64/b Feb. 23, 2022, as Russian tanks were poised to attack Kyiv. The measure has fallen 47% in value over the last year of fighting. European gas prices paint a similar picture.

—Read the article from S&P Global Commodity Insights

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Sustainability

EC Releases Reporting Obligations Under CBAM, Seeks Feedback

The European Commission published a draft of reporting obligations and regulations that will govern its new carbon border tax, which begins its transitional phase Oct. 1. The EC also launched a public consultation June 13 for feedback from companies on its Carbon Border Adjustment Mechanism, which will levy a carbon tax on imports of selected energy-intensive materials and products into the EU, removing the gap between the carbon price under the EU Emissions Trading System and the export country of origin's carbon price.

—Read the article from S&P Global Commodity Insights

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Energy & Commodities

China's Population Is Shrinking: What Does It Mean For Food Demand?

The demand driver for food commodities is pretty simple. It amounts to the number of mouths to feed and the household income available to spend on food. Food being a necessity, when marginal income increases are achieved in low-income countries a larger proportion of that income tends to be spent on food than in higher-income countries. This varies across food categories but consider for a moment the chart below that compares per capita real GDP versus animal protein consumption.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Consumers Desire Automated Safety Over Self-Driving Tech

Car buyers understand and want advanced driver assistance systems (ADAS) features that provide safer driving — and they expect them to be standard in new luxury and mainstream vehicles. But the same feelings do not apply when ADAS is applied to autonomous driving systems. According to a spring 2023 S&P Global Mobility consumer survey, trust and familiarity remain barriers to car shoppers adopting autonomous driving technology. Put simply, as the amount of vehicle automation increases, consumer desire decreases.

—Read the article from S&P Global Mobility

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