Vietnam’s economy in the second half of this year is set to pick up again after slow growth in the first half, but its full-year growth would be slower than earlier predicted, HSBC and DBS Bank said.
In its July update for the Vietnamese economy, Singapore-based DBS Bank revised its 2023 growth forecast down to 4.6% from 5.5%.
HSBC Vietnam on Thursday trimmed its full-year growth for the country to 5% from a previous 5.2%, expecting a clear rebound only in the final quarter.
The reason for the two banks’ revisions is economic growth in the country rebounded in Q2 this year but stayed sluggish given the challenging global economic environment. The Q2 expansion pace was 4.14% year-on-year from Q1’s 3.31%.
In the first half of 2023, Vietnam’s economy expanded by 3.72% year-on-year, according to the General Statistics Office (GSO).
FDI serves as tailwind
In its Vietnam update, DBS said the country’s domestic services and foreign tourism will likely continue outperforming and stay supportive.
Public infrastructure spending should gain further traction as the economic recovery package for 2022-2023 rolls out, with the economy also held up by easier fiscal and monetary policies.
However, tight monetary conditions in advanced economies will likely restrain a strong upturn in global external demand for Vietnamese products and overall growth prospects, the multinational banking corporation said.
Despite the cyclical headwinds, foreign direct investment (FDI) will remain a structural tailwind amid global supply chain diversification this year, the Singapore bank said.
Vietnam’s export-oriented manufacturing growth decelerated sharply amid global external headwinds, but bounced in Q2. DBS thinks that a recovery is on the cards. A similar uptick was also seen in monthly goods exports figures.
Vietnam’s structural story of attracting FDI and position as a growing manufacturing hub remains intact despite short-term cyclical growth headwinds. DBS expects Vietnam to remain a key beneficiary for re-location or co-location of production, supported by its already well-known and favorable factors.
These include competitive costs for a relatively skilled workforce, extensive free trade agreements, proximity to China, its bright medium-term growth prospects of 6-7%, and a growing electronics ecosystem.
Total newly registered FDI in the country grew by around 30% year-on-year in this year’s first half. Foreign investors still have high confidence in Vietnam’s long-term potential, DBS stressed.
As for HSBC Vietnam, the bank noted that the country’s National Assembly just passed the long-anticipated law to further ease visa restrictions. Effective on August 15, the new rule will extend the validity for visa-exempt markets to 45 days (up from 15) and those with e-visa arrangements in 80 markets to 90 days (up from 30).
“The change will come in time for the popular winter season, aiming to facilitate easier travel and attracting an increasing influx of tourists,” HSBC Vietnam said Thursday.
On the monetary front, HSBC said it expects the State Bank of Vietnam (SBV) to deliver another 50 basis-point rate cut in this third quarter, bringing the policy rate down to 4%. This will likely reverse the SBV’s tightening efforts in 2022, as well as matching the magnitude of monetary support during the pandemic.
In less than three months during the second quarter, the SBV cut its policy rate three times, each time by 50 basis points.
On the fiscal front, authorities in Vietnam have also announced various fiscal support measures, with the magnitude almost matching those introduced during the pandemic. They included a 2 percentage-point value-added tax reduction for selective sectors (approved by the National Assembly this June), tax payment deferrals on various taxes for 3-6 months, as well as environment tax cuts on gasoline and diesel.
“The authorities are also aware of fiscal constraints of revenue shortfall, suggesting limits of an ‘all-in’ fiscal rescue package,” HSBC Vietnam noted.
Singapore’s United Overseas Bank (UOB) earlier this week revised its 2023 growth projection for Vietnam down to 5.2% in view of the challenges ahead and the first half’s 3.72% expansion.
In its latest country review for Vietnam completed at end-Jun, the International Monetary Fund (IMF) pegged Vietnam’s 2023 growth projection at 4.7% before picking up again.