Vietnam's 2023 economic expansion likely 5.8%: HSBC

Vietnam’s GDP growth would moderate to 5.8% in 2023 from 8.02% last year, given the external weakness and waning re-opening effects, HSBC said Thursday.

With last year’s 8.02% expansion, the highest in 12 years, Vietnam was one of Asia’s fastest-growing economies, but 2023 would be a challenging year, the bank noted.

HSBC's prediction is lower than the Vietnamese National Assembly’s 6.5% target, which is slightly lower than the Singapore-headquartered United Overseas Bank's (UOB) 6.62% forecast.

According to HSBC, the biggest downside risk to Vietnam’s growth this year is intensifying trade headwinds. Vietnam’s external engine has moderated sharply in the past few months, and the outlook is uncertain for the new year, as its major trading partners’ growth is set to slow.

The country recorded export revenue of $371.85 billion in 2022, up 10.6% year-on-year. Of this, foreign-invested enterprises accounted for $276.76 billion, up 12.1%, or 74.4%.

HSBC warned that high inflation is worth a close watch, as Vietnam continues to see stronger inflation pressures, particularly on core prices. “We expect average inflation to accelerate to 4.0% in 2023.”

Vietnam’s consumer price index increased by 3.15% last year, while average core inflation in 2022 rose 2.59%, according to the General Statistics Office.

HSBC said there is plenty of room for Vietnam’s tourism sector to continue recovering. China’s re-opening on January 8 would likely provide a boost. In addition, Vietnam remains an attractive FDI destination, providing some cushion to offset immediate trade headwinds.

“Not only have traditional tech giants like Samsung and LG continued their expansion plans in the country, but new players such as Apple have also been adding production lines in their supply chain diversions to Vietnam,” the global bank noted.

Vietnam’s tourism recovery has lagged behind its peers. The Southeast Asian country in 2022 welcomed around 3.6 million international tourists, or 70% of its annual target, just equal to 20% of 2019’s level.

Due to global trade headwinds, Vietnam’s exports slumped by 14% year-on-year in December 2022, with broad-based weakness across major items, including electronics. Meanwhile, imports also fell sharply by 8.1% in the month, mostly driven by tech-related imports.

“This suggests that Vietnam has been in the frontline from a cooling global tech cycle, given its import-intensive nature in electronics manufacturing.”

Vietnam’s manufacturing outlook is set to face challenges. Its manufacturing sector moved deeper into contraction amid deteriorating demand both domestically and abroad as its Purchasing Managers’ Index (PMI) announced by S&P Global dropped to 46.4 in December 2022 from 47.4 in November. The latest result is under the boom-or-bust line of 50 that separates expansion from contraction.

In terms of monetary policy, HSBC said it expects the State Bank of Vietnam (SBV) to slow its monetary tightening pace as the U.S. Federal Reserve is expected to slow and forex volatility has eased, though the Fed’s hiking cycle would be still underway.

HSBC expects the SBV to raise its refinancing rate by 0.5 percentage points each in the first and second quarters of this year, taking the refinancing rate to 7.0% by mid-2023.