HSBC maintains Vietnam GDP growth forecast at 6.5% despite typhoon Yagi

HSBC has maintained its Vietnam GDP growth projection at 6.5% for both 2024 and 2025, despite temporary economic disruptions from super typhoon Yagi, the most powerful to hit the country in over three decades.

In its latest update on Vietnam, the London-headquartered bank said the potential upside risks can offset the temporary economic disruptions from the typhoon, which made landfall in Vietnam on September 7 and left several industrial hubs in the northern region devastated.

Vietnam’s economic growth improved and surprised on the upside in Q2/2024, rising 6.9% year-on-year in the quarter. The recovery in the external sector has started to broaden out beyond consumer electronics.

The manufacturing sector has emerged strongly from last year’s woes. The Manufacturing Purchasing Managers' Index (PMI) has registered five consecutive months of expansion, while industrial production has registered a bounce-back in activity for the textiles and footwear industry as well.

“This has supported robust export growth at double digits, with structural forces, such as expanding market access for Vietnamese agricultural produce, also underway,” the bank’s researchers said.

Furthermore, the government has put in place measures to support a wide range of domestic sectors that are expected to shore up confidence with time. Environment tax cuts on fuel and value-added tax cuts for certain goods and services will last until year-end 2024, while the revised Land Law effective from August will buttress the outlook for real estate.

The new Land Law has already contributed to a boost in foreign investment in the sector, with recent FDI showing broad-based gains.

The Asian Development Bank (ADB) last week kept its economic growth forecast for Vietnam unchanged at 6% this year. Meanwhile, Singapore-based UOB revised down its GDP growth forecast for Vietnam by 0.1 percentage point to 5.9% this year, taking into account the damage caused by Yagi.

Similarly, Japan’s Mitsubishi UFJ Financial Group (MUFG) forecast that the typhoon can reduce Vietnam’s GDP growth in 2024 by 0.2-0.5 percentage points.

Minister of Agriculture and Rural Development Le Minh Hoan said last Saturday that the typhoon caused economic damage estimated at VND81.5 trillion ($3.31 billion), VND20 trillion higher than the figure estimated by his ministry a week earlier.

On inflation, HSBC said price developments are turning more favorable in H2/2024, as unfavorable base effects from energy have faded. An expected Fed easing cycle will also help to alleviate some exchange rate pressures.

The bank maintained its inflation forecasts at 3.6% in 2024, well below the government’s target ceiling of 4.5%. For 2025, the bank kept its inflation forecast at 3%.