Despite headwinds, Vietnam ended 2023 relatively optimistic that 2024 is likely to be the year that Vietnam emerges strongly from mounting challenges, HSBC said in a recent note.
Growth normalization
The manufacturing sector, one of the country’s key growth engines, saw a notable improvement in the second half of last year from extreme sluggishness in H1/2023. It has shown positive signs of recovery, led by the electronics sector.
A gradual recovery in Vietnam’s external sector, driven by electronics shipments, brings good news for its current account, helping to defend the Vietnamese dong to some extent. After suffering from two consecutive years of current account deficits, Vietnam is finally on course to return to a current account surplus, which is expected to be sizeable.
Thanks to resilient remittances, rising tourism receipts, and improving trade dynamics in H2, the current account, measured on a four-quarter rolling basis, returned almost to 5% of GDP as of Q3/2023, on par with its historical highs.
Apart from an improving manufacturing sector, Vietnam’s robust services continue to provide much-needed support to the economy, evident in tourism-related sectors, including retail sales, transport, and accommodation.
On the other hand, not all services sectors have enjoyed the same benefits as tourism. Despite a small improvement, real estate services remain weak. Growth in private consumption more than halved in 2023 from its pre-pandemic trend of 7%.
On track for recovery
The country’s GDP growth rose to 6.7% year-on-year in Q4/2023, lifting its yearly growth rate to 5.05%. This was in line with HSBC economists’ forecast of 5%, which they had maintained for more than six months, despite a downward revision to 4.6% among consensus.
They reckon that Vietnam is on track for recovery, likely returning to its trend growth of 6% in 2024.
As FDI inflows continue to add production capacity, Vietnam’s manufacturing sector is experiencing the green shoots of a rebound, bringing opportunities for its exports.
They point out several downside risks. First, the export recovery is not broad-based, almost entirely led by a brighter tech cycle. An earlier-than-expected release of Samsung’s flagship smartphone also helps. “While it is optimistic to see a nascent turn in the trade cycle, we remain cautious on the magnitude of such a rebound,” they say.
Second, inflation is also worth watching. Fortunately, Vietnam’s inflation was under control in 2023, averaging 3.3%, which was in line with HSBC’s expectations and below its inflation ceiling of 4.5%.
The HSBC economists expect inflation to remain benign in 2024, with a forecast of 3.4%, well below the new inflation target of 4-4.5%. However, they recommend paying attention to upside risks to inflation such as energy and food, the rise of healthcare costs.
While maintaining an eye on upside risks to prices, the State Bank of Vietnam is expected to keep its policy rate steady at 4.5% thorough 2024, they say.