HSBC, IMF raise Vietnam growth forecast

HSBC has revised up Vietnam’s GDP prediction this year from 6.6% to 6.9%, while International Monetary Fund put its forecast at 6%.

The bank said with 6.9% expansion, the country could lead the region.

Vietnam has benefited from its economic reopening while domestic demand is returning. After two quarters of stable reopening, Vietnam’s economic recovery continues to be a prominent example in the region, HSBC noted in a new report.

GDP growth in the second quarter reached 7.7% year-on-year, exceeding market expectations and the previous forecast of institutions at around 5.8-5.9%.

HSBC expects inflation to average 3.5% this year, but could exceed the State Bank of Vietnam’s 4% target at some points in time, requiring normalisation of monetary policy.

The lender predicted the central bank could start raising interest rates by 50 basis points from the third quarter of 2022 and by 50 basis points per quarter until the third quarter of 2023. Thus, by the end of next year, the policy interest rate could rise to 6.5%.

Despite the positive growth, HSBC said that the global energy crisis has begun to affect the country’s growth. Escalating commodity prices led to a trade deficit of $600 million in the second quarter, which could make the national current account situation even worse.

The bank expects Vietnam to run a current account deficit for the second year in a row, probably only about 0.3% of GDP, after seeing a deficit of 1% of GDP last year. This will put even more pressure on the Vietnamese currency.

While household consumption has recovered solidly, high oil prices could eat into people’s pockets, reducing the speed of recovery.

A bright spot for Vietnam to defend itself against external risks is stable FDI sources, creating a fulcrum for the basic balance. Strong FDI capital can offset the current account deficit in previous quarters. Specifically, FDI investment in the manufacturing sector continues to increase, reflecting firm investor interest and confidence in Vietnam’s sustainable conditions.

After taking into account the growing risks, particularly from the energy sector, HSBC lowered its forecast for Vietnam's growth in 2023 to 6.3%, from 6.7% previously forecast.

Meanwhile, IMF said Vietnam’s growth is expected to reach 6% in 2022 as activity normalisation continues and the country's Program for Recovery and Development (PRD) is implemented.

A post-pandemic recovery is underway in Vietnam and high-frequency indicators point to stronger momentum going into 2022, with rising retail sales, industrial production, and firm entry, according to a conclusion the institution’s executive board issued in Washington on Tuesday after their latest consultation with Vietnam.

“While inflation has recently picked up, due to rising commodity prices and supply-chain disruptions, it remains well below the central bank’s inflation ceiling, given economic slack and relatively stable food and administered prices.”

However, Vietnam’s strong economic recovery remains “uneven, with the labor market lagging, rising financial sector vulnerabilities, and longstanding structural challenges”.

Vietnam's economic expansion in the first half of the year was 6.42%, higher than the 5.1-5.7% target. Growth higher than pre-pandemic levels was recorded in sectors like processing, manufacturing, goods retail, consumer services, and exports.

It aimed to achieve economic expansion of 7% this year, higher than the previously-set target of 6-6.5%, Minister of Planning and Investment Nguyen Chi Dung told a government meeting last Monday.