Vietnam GDP to grow 8.1% this year, likely 5.8% next year: HSBC

Vietnam’s economy is predicted to expand 8.1% this year and slow down to 5.8% in 2023, according to a new HSBC report.

The global bank, in its latest "Asian Economics Quarterly - Retooling Factory Asia" report, says Vietnam faces upcoming risks of trade headwinds amid global slowdown and stronger inflationary pressures.

Since the advent of the U.S.-China trade tensions, Vietnam has been one of the biggest beneficiaries in terms of both trade and foreign direct investment (FDI) diversion, boosting its export share in the U.S. market in particular. As a result, the country has become increasingly vulnerable to economic slowdown in the U.S., the report says.

Weak goods export demand has already led to a marked decline in Vietnam’s exports, with November marking the first meaningful year-on-year decline in two years.

Goods that benefited from strong demand during the pandemic, including electronics, textiles, and footwear, are seeing a “pay-back” period as demand shifts to services and global growth slows down.

Another major export category highly exposed to U.S. demand is wooden products at about 60%. Slowing property market activity in the West brings further downside risks to Vietnam’s exports, HSBC notes.

Inflation pressure

Vietnam has started to see stronger inflation pressure, with the latest data exceeding the State Bank of Vietnam's (SBV) 4% target. Not only has core inflation accelerated, but Vietnam has also seen a domestic energy shortage, keeping headline prices elevated.

Risk also comes from upward pressure on energy prices. Despite petroleum prices falling below June’s peak, they remain at elevated levels, according to the report.

To reduce the risk of potentially volatile onshore fuel inventories, the government has been directing domestic refineries and energy state-owned enterprises (SOEs) to raise energy imports for at least the first half of 2023. This would likely squeeze Vietnam’s current account advantage, on the back of higher import bills, HSBC says.

Rising core inflation increasingly suggests the SBV’s hiking cycle is still underway. HSBC expects the SBV to raise its refinancing rate by 50 basis points each in the first and second quarters of next year, taking the refinancing rate to 7.0% by mid-2023.

Economy in recovery, backed by domestic demand

On a positive note, domestic demand has come to a partial rescue, thanks to an ongoing recovery in its labor market. While the unemployment rate dropped to 2.3% as of Q3/2022, there is still potential for a further decline, as many jobs are concentrated in tourism-related sectors. Although tourists have started to return, arrivals are still less than 20% of 2019’s level.

The bank added that despite cyclical headwinds, firms continue to invest in Vietnam. Major electronics firms Samsung and LG both recently announced that they will be further investing here, highlighting Vietnam’s long-term attractiveness.

The Asian Development Bank (ADB) on December 14 raised its Vietnam GDP forecast for this year from 6.5% to 7.5% in September, while lowering its prediction for developing Asia and the Pacific amid a worsened global outlook.

HSBC forecasts that the Vietnamese economy's growth would rebound to 6.7% in 2024. It projects the country's nominal GDP would grow to $390 billion in 2022, $408 billion in 2023, and $438 billion in 2024. GDP per capital may also hike from $3,919 in 2022 to $4,056 in 2023, and $4,308 in 2024. Besides, the consumer price index (CPI), a gauge for inflation, may increase by 3.2%, 4%, and 3.5% in 2022, 2023, and 2024, respectively, year-on-year.