Vietnam economy regional top performer post pandemic: HSBC

HSBC Global Research expects Vietnam to be among the region's top growing countries thanks to its resilient economic potential and quick return post-Covid.

Vietnam was one of the world’s few countries to record growth in two consecutive years since the Covid-19 pandemic struck. The Southeast Asian economy is expected to continue thriving in the second half of this year, said Ngo Dang Khoa, country head of markets and securities services, HSBC Vietnam.

The country's economic expansion in the first half of the year was 6.42%, higher than the 5.1-5.7% target, official data shows.

According to Khoa, FDI continues to drive Vietnam’s economic success story. The country is among the top two regional recipients of FDI relative to GDP, highlighting its increasing attractiveness.

"In recent years, the economy has turned itself into a rising star among global supply chains, gaining a substantial global market share in sectors like textiles, footwear and consumer electronics. Vietnam has climbed the value chain over the years, growing into a key manufacturing hub for electronics products, attracting stable FDI inflow with its sound macro fundamentals, preferential tax incentives and abundance of relatively cheap and productive labor."

The HSBC executive noted that the State Bank of Vietnam has had the Action Plan of the Banking Industry to implement the National Strategic Plan on Green Growth and the Scheme on green bank development in Vietnam by 2030 to drive the growth of green credit and green banking, channeling the funds to environmental projects, promoting green manufacturing, services and consumption.

According to the central bank, as of the end of 2021, 67 financial institutions funded green projects in renewable energy, clean agriculture, textiles and garments, etc. Outstanding green credit accounted for 5% of the country’s total last year, a 0.46% year-on-year increase.

Vietnam’s key growth engine is set to see strong recovery, as the labor shortage continues to ease, Khoa noted. After the lunar New Year holidays in February, over 90% of workers have returned to Ho Chi Minh City. The country’s exports grew 17.3% year-on-year in the first six months.

“All of these point to a steady recovery in Vietnam. Thus, HSBC now expects the economy to grow 6.9% in 2022, up from our previous forecast 6.2% and 6.6%, likely topping the region,” he said.

Despite the optimism, headwinds prevail. In particular, Vietnam is facing multiple challenges given elevated global energy prices, according to Khoa.

“This will increase Vietnam’s energy bills, deteriorating its terms of trade position. Higher oil prices will raise residents’ cost of living, dampening the pace of recovery for private consumption, especially when the labor market has shown signs of recovery.

“Global energy inflation continues to gain pace, pushing domestic petrol prices to new highs. Given elevated global oil prices, we expect the trend to persist, putting upward pressure on inflation.”

Vientam 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 in early July.

IMF in early July put its Vietnam GDP forecast at 6%. It expects the country's inflation to be contained at a maximum of 4%, which is the State Bank of Vienam's target.