Asia Edge economies macroeconomic developments Report Interpretation

Overview

This weekly Asia Edge update reviews recent macroeconomic developments in Vietnam, Pakistan and Mongolia. Its central message is unevenly positive: Vietnam combines easing inflation with strong activity, whereas Pakistan’s inflation outlook and Mongolia’s external accounts still warrant caution.

Core views

Vietnam’s headline CPI inflation eased to 4.45% year on year in July from 4.7% in June, the lowest reading since February. The outcome was slightly below consensus and J.P. Morgan’s 4.6% forecast, and broadly aligned with the central bank’s 4.5% target. Lower food inflation, at 4.6% versus 4.9%, and lower transport inflation, at 3.7% versus 5.3%, drove the moderation. Average gasoline and diesel prices fell 3.0% and 3.9%, respectively, amid lower international oil prices and fuel-tax cuts extended through end-September. Inflation momentum slowed to 4.9% quarter on quarter seasonally adjusted annualized from 8.6%, although core inflation edged up to 4.6% from 4.5%. J.P. Morgan expects 4.6% inflation in August and retains average inflation forecasts of 4.6% for 2026 and 3.2% for 2027. Vietnam’s July activity data indicated broad-based acceleration. Retail-sales growth rose to 16.7% year on year from 16.2%, or 11.8% in real terms, while manufacturing output accelerated to 19.1% from 15.5%. Electronics and computers output increased 45.7%, and machinery and equipment rose 20.3%; most other manufacturing industries also recorded low-double-digit growth, apart from chemicals and refining. The manufacturing PMI increased to 52.9, with easing price components and solid new-order growth. The report attributes the strength to the technology cycle and a large government investment push intended to relieve infrastructure bottlenecks and crowd in private investment. It maintains a 7.8% 2026 GDP-growth forecast with upside risks, but stresses that macroeconomic management is important because easier macroprudential conditions may raise medium-term macro-financial risks in a bank-centric, credit-reliant economy. Pakistan’s headline inflation fell to 9.2% in July from 11.1% in June, below both the 9.3% consensus forecast and J.P. Morgan’s revised 10% forecast, returning to single digits for the first time since March. The decline was led by housing and utilities inflation, which slowed to 7.1% from 15.5% on favorable gas-price base effects and lower electricity tariffs, and by transport inflation, which fell to 15.1% from 25.7% as fuel prices declined. However, food inflation accelerated to 10.6% from 9.4%; wheat and flour inflation reached 77.8% and 67.6%, respectively, amid reported shortages and increased imports. J.P. Morgan keeps its average FY2026/27 inflation forecast at 9.4%, citing sticky core prices and food-price pressure. It expects inflation to return to the 5–7% target only in late 2027. With the policy rate at 11.5%, the report believes additional hikes will ultimately be needed for sufficient restraint, although it expects the State Bank of Pakistan to remain on hold for now following dovish communication. Mongolia’s current account returned to a US$255mn surplus in June after a US$358mn deficit in May, bringing the 1H26 balance to a US$0.2bn surplus. This was only the second first-half surplus since 2009 and broadly matched the 1H23 outcome. Strong copper and coal exports produced a year-to-date goods surplus running at about twice the 2023 pace, but higher investment-income payments on FDI widened the primary-income deficit and offset part of that strength. Accordingly, J.P. Morgan lowered its annual current-account-surplus forecasts to 1.5% of GDP for 2026 from 2.7% and to 1.2% for 2027 from 2.4%, reflecting an expected persistent primary-income deficit rather than weaker mining momentum. Near-term balances may be volatile as July–August fuel imports likely increased to rebuild inventories after fuel reserves fell below one month of supply. The report expects the broader effect on third-quarter real growth to remain limited because fuel imports have been diversified toward Korea and China.

Analysis framework

The report assesses each economy through the latest inflation, activity, trade and external-balance releases, compares them with prior readings and forecasts, identifies the main component drivers, and then updates or reaffirms its macro forecasts and policy implications.

Methodology notes

• Other

  Inflation-component and macro-data decomposition

  The report breaks headline inflation into food, transport, housing, utilities and fuel-price effects, then links the changes to inflation forecasts and monetary-policy implications.

• Industry AnalysisSupply-demand framework

  External-balance assessment through exports, income payments and imports

  For Mongolia, the report explains the current account through strong coal and copper exports, higher FDI-related income outflows, and temporary fuel-import demand.

Key data

• Vietnam July headline CPI inflation4.45% yoyDown from 4.7% in June; lowest since February.
• Vietnam July manufacturing production19.1% yoyUp from 15.5% in June.
• Vietnam 2026 GDP growth forecast7.8%Maintained, with risks tilted to the upside.
• Pakistan July headline inflation9.2%Down from 11.1% in June and below the 9.3% consensus forecast.
• Pakistan policy rate11.5%The report expects the central bank to remain on hold for now.
• Mongolia 1H26 current-account balanceUS$0.2bn surplusJune surplus was US$255mn after a US$358mn deficit in May.
• Mongolia 2026 current-account-surplus forecast1.5% of GDPRevised down from 2.7%.
• Mongolia 2027 current-account-surplus forecast1.2% of GDPRevised down from 2.4%.

Impact & implications

The report sees Vietnam’s combination of softer inflation and accelerating demand as supportive of its growth outlook, but flags credit-related macro-financial risks. Pakistan’s lower headline inflation does not yet resolve underlying food and core-price pressures. Mongolia’s mining exports remain supportive, but income outflows and fuel-import needs constrain the external outlook.

Risks

• Vietnam’s macroprudential easing could increase medium-term macro-financial risks as investment relies heavily on domestic credit.
• Pakistan faces sticky core inflation and continued food-price pressure, including shortages affecting wheat and flour.
• Mongolia’s monthly current-account balance could weaken temporarily as fuel imports rise; fuel shortages are also a near-term headwind.

What to watch

• Vietnam’s August inflation reading, fuel-price effects, and the balance between currency stability, credit supply and growth.
• Pakistan’s food-price pressures, the path back to the 5–7% inflation target, and State Bank of Pakistan policy decisions.
• Mongolia’s fuel inventories and imports, current-account volatility, and the persistence of FDI-related primary-income outflows.