Hanoi (VNA) – HSBC has maintained its GDP growth forecast for Vietnam at 6.5% for both 2024 and 2025 in its “Asian Economics Quarterly – Comin’ for a landing” report.
According to the bank, Vietnam’s economic recovery continues to firm up as the Year of the Dragon progresses.
The report said that Typhoon Yagi hit Vietnam particularly hard after making landfall on September 7. The government has reportedly estimated damage worth 1.6 billion USD. Although recovery efforts and operation resumption are under way, the aftermath of Asia’s strongest typhoon so far this year is expected to persist for weeks.
Prime Minister Pham Minh Chinh has called for all efforts to restore livelihoods to achieve the government’s growth target of 7%, which is higher than that set by the National Assembly of 6 - 6.5% at the end of 2023.
In addition to global energy prices, Vietnam is also vulnerable to food shocks. For instance, pork prices are up after supply was affected by African Swine Fever. That said, pressure on some agricultural products is expected to lessen as the weather transition from El Niño to La Niña brings more favourable harvesting conditions to Southeast Asia.
Finally, whether end-demand for goods improves will be key in determining the strength of Vietnam’s recovery, as Western markets make up close to half of Vietnam’s exports. The trajectory and pace of consumer spending in the West will therefore need to be closely watched.
Despite the challenges, growth improved and surprised on the upside in the second quarter of 2024, rising 6.9% year-on-year. The recovery in the external sector has started to broaden out beyond consumer electronics, although the pass-through to lifting the domestic sector still remains to be seen.
The manufacturing sector has emerged strongly from last year’s woes. PMIs have registered five consecutive months of expansion, while industrial production (IP) has bounced back, including textiles and footwear. This has supported robust export growth at double digits, with structural forces, such as expanding market access for Vietnamese agricultural produce, also underway.
However, the domestic sector is recovering more slowly than initially expected, with retail sales growth still below pre-pandemic levels. The government has put in place measures to support a wide range of domestic sectors in an encouraging sign expected to shore up confidence. Environment tax cuts on fuel and value-added tax cuts for certain goods and services will last until year-end 2024. The revised Land Law, effective from August, will buttress the outlook in real estate. Albeit early, the latter seems to have already contributed to a boost in foreign investment in the sector, with recent FDI showing broad-based gains.
On inflation, price developments are turning more favourable in the first half of 2024, as unfavourable base effects from energy have faded. An expected Fed easing cycle will also help to alleviate exchange rate pressure.
On foreign investment, newly registered FDI was up 35% year-on-year for the first eight months of 2024. Intra-ASEAN investments are leading the way, making up 40 % of inflows to date. Existing investors continue to make commitments. Amkor Group invested an additional 1.07 billion USD in its semiconductor project, supporting Vietnam’s expanding manufacturing capabilities. Foreign investment into the real estate sector has also risen over recent months. This is likely being supported by the revised Land Law effective August, which relaxed some regulations to spur demand.
In addition, Vietnam has received over 11 million international tourists to date. This has helped to buoy retail sales, up 8.5%, and tourism sales were up 26% in the first eight months of the year. Eventual spillover from a resurgent manufacturing sector, as well as fiscal and monetary support should embolden household spending. Albeit already robust, there are still many avenues to improve Vietnam’s tourism prospects further. For instance, despite making up one-third of tourist arrivals pre-pandemic, mainland Chinese tourists still require a visa to travel to Vietnam.
Notably, Vietnam’s digital economy has the potential to become the second largest in ASEAN by 2030. Based on the e-Conomy SEA report by Google, Temasek, and Bain & Company, Vietnam was the fastest growing digital economy in ASEAN last year. This is being driven by a growing consumer population savvy with the internet. Digital transformation is also being driven by the government and businesses. For example, there is still room to raise the usage of online platforms and digital signatures when handling official documents. However, challenges remain. The development of human capital and infrastructure has not kept pace with economic growth. However, the government and private sector are taking steps to address these areas./.
