HSBC ups Vietnam growth forecast to 8.1%
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Lender HSBC has raised its 2022 growth forecast for Vietnam from 7.6% to 8.1%, a prediction that if manifested would make the country the second fastest growing economy in ASEAN behind Malaysia.
For Vietnam, 2022 was a year of booming recovery as the Southeast Asian nation appeared set to remain one of Asia’s outperformers thanks to a 13.7% GDP expansion in the third quarter.
Vietnam’s unemployment rate dropped to 2.3% by the third quarter and that number is expected to drop as jobs in tourism-related sectors could boom when the travel industry comes back to life post-lockdown.
But increasing trade headwinds have also brought a few clouds to the horizon of Vietnam’s optimistic growth outlook.
After growing over 17% year-on-year in the first three quarters of 2022, export growth mellowed significantly in October, with November then seeing the first meaningful year-on-year decline in two years.
The primary drag came from electronics shipments, which account for 35% of Vietnam’s total exports. The economic slowdown in the US has exacerbated Vietnam’s export woes, as the North American economic powerhouse is the largest market for many of Vietnam’s goods exports.
Vietnam is also now under the pressure of stronger inflation, with the latest data exceeding the State Bank of Vietnam’s 4% inflation growth “ceiling.”
Not only has core inflation accelerated, but Vietnam is also experiencing a domestic energy shortage, keeping headline prices high in the sky.
Rising core inflation increasingly suggests that the State Bank of Vietnam will continue its cycle of rate hikes. HSBC expects the central bank to raise its refinancing rate by 50 basis points each in the first and second quarter next year, raising the refinancing rate to 7.0% by mid-2023.
“Vietnam is also now under the pressure of stronger inflation, with the latest data exceeding the State Bank of Vietnam’s 4% inflation growth “ceiling.””
Challenges will likely be more acute next year, particularly after the post-lockdown re-opening effect fades and the lagging impact of high inflation starts to kick in. Therefore, HSBC expects a more moderate growth figure of 5.8% for Vietnam next year.
The international bank has also emphasized that the biggest risk to growth in Vietnam is intensifying trade headwinds.
“Since the advent of the U.S.-China trade tensions, Vietnam has been one of the biggest beneficiaries in terms of both trade and foreign direct investment diversion, boosting its export share in the US market in particular,” according to HSBC.
But this comes with a major downside, according to the bank’s analysts: “As a result, Vietnam has become increasingly vulnerable to a U.S. economic slowdown,” the global lender reported.
However, despite cyclical headwinds, major companies continue to invest in Vietnam. Global electronics firms Samsung and LG both recently announced that they will continue increasing investment in Vietnam over the next few years, highlighting Vietnam’s long-term attractiveness.
Questions & Answers
Q.What is the primary reason for the recent slowdown in Vietnam's export growth?
What is the primary reason for the recent slowdown in Vietnam's export growth?
The primary reason for the slowdown in export growth is a significant decline in electronics shipments. These products account for 35% of Vietnam's total exports, and the US economic slowdown has exacerbated the issue.
Q.What is the State Bank of Vietnam expected to do regarding interest rates?
What is the State Bank of Vietnam expected to do regarding interest rates?
The State Bank of Vietnam is expected to continue its cycle of rate hikes due to rising core inflation. HSBC anticipates two 50 basis point increases in the first and second quarters next year, bringing the refinancing rate to 7.0% by mid-2023.
Q.How do trade tensions between the US and China affect Vietnam's economy?
How do trade tensions between the US and China affect Vietnam's economy?
Vietnam has been a major beneficiary of US-China trade tensions, seeing increased trade and foreign direct investment. However, this also makes Vietnam more vulnerable to an economic slowdown in the United States, its largest export market.
Q.Why is Vietnam facing pressure from stronger inflation?
Why is Vietnam facing pressure from stronger inflation?
Vietnam is experiencing stronger inflation due to accelerated core inflation and a domestic energy shortage. This situation is keeping headline prices high and has pushed inflation data beyond the central bank's 4% growth ceiling.
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