Vietnam on track to recover from global trade downturn: HSBC

Vietnam’s exports continued to gain momentum, growing almost 6% year-on-year in October, suggesting that the country in on track to recover from the global trade downturn, HSBC said in its monthly report released Wednesday.

Vietnam’s exports in October rose 5.3% month-on-month and 5.9% year-on-year to an estimated $32.31 billion, according to the government-run General Statistics Office.

HSBC pointed out that as demand from the West for goods has slumped, Vietnam’s major shipments, spanning from consumer electronics and textile/footwear to wooden furniture and machinery, are all in the doldrums. That being said, agriculture exports have emerged as the only bright spot, defying a trade downturn.

While agriculture exports’ share of below 10% in the total export basket does little to offset all trade headwinds, it does help slow the deterioration.

“Thanks to favorable base effects in the last two months of the year, export growth is likely to accelerate. This heralds the long-anticipated recovery in the trade sector, which is expected to lift growth to 6-6.5% in 2024 according to the government,” the bank added. HSBC earlier forecast Vietnam’s 2024 GDP growth at 6.3%.

Going forward, it will be key for Vietnam to take advantage of free trade agreements and focus on matching its export products to international standards to further improve its market potential.

Analyzing Vietnam’s export structure, the bank said that although phone shipments remain a drag, the exports of computer and electronic parts have more than offset this weakness. In particular, imports of the latter have achieved double-digit growth for three consecutive months, pointing to an initial rebound in the electronics export cycle.

Encouragingly, Vietnam’s GDP growth is not limited to the external sector. After private consumption saw some marginal improvements in Q3/2023, retail sales continued to recover, growing 7% year-on-year.

In addition, inflation also began in Q4 with some good news. Inflation momentum only rose marginally, up 0.1% month-on-month, resulting in a year-on-year inflation print of 3.6%, below consensus (4% anticipated by Bloomberg and 3.9% by HSBC. This is largely due to lower food prices and falling oil prices.

Despite upside risks, inflation should be broadly in check, according to HSBC. While inflation is expected to accelerate to 4% in Q4/2023 (from 2.9% in Q3), it is forecast to remain below the inflation ceiling of 4.5%.

The bank expects inflation to come in around 3.3% in 2024, again, well below the government’s inflation ceiling of 4-4.5%.

Despite recent moves by regional peers to resume rate hikes, including Indonesia and the Philippines, “we do not expect the same thing from the State Bank of Vietnam, as inflation does not appear to be an imminent concern. We maintain our policy rate forecast at 4.50% for 2023,” HSBC analysts said.