Female workers make garment products at March 29 Textile Garment Joint Stock Company in Da Nang city’s Thanh Khe district (Photo: Vietnam Plus) Hanoi (VNA) - Vietnam’s recovery momentum has been sustained into the first quarter of 2022, thanks to both external and domestic pillars of growth, according to a report issued by HSBC.
The country saw a rosy start to 2022, with its GDP growing by 5.0% year-on-year in the first three months. Vietnam has joined its peers to re-open its borders from mid-March, paving the way to revive its tourism sector which has been affected by the COVID-19 pandemic.
Similar to the fourth quarter of 2021, Vietnam’s manufacturing sector remains the key driver for growth in the first quarter of this year. Manufacturing output expanded by 7.8% year-on-year, driven by double-digit growth in electronics production. Indeed, the strong performance is also reflected in Vietnam’s steaming external engine. Export growth in March increased almost 15% compared to the same period last year, bringing first-quarter growth to almost 13% year-on-year. This is mainly attributed to the rising demand for electronics products.
Aside from benefitting from an extended tech cycle, Vietnam’s exports were strong across all sectors namely textile/footwear, machinery and wooden products. Its export outperformance also reflected an easing of the significant shortage of labour, especially after the Tet (Lunar New Year) holidays, though some parts of the economy reportedly still face a lack of labour.
To deal with the issue, the Government has adjusted workers’ overtime cap from 40 to 60 per week but not exceeding 300 hours per year for all occupations, aiming to meet the increasing demand for orders from now until the end of 2022.
In addition to its firm external engine, Vietnam’s domestic demand has gradually been recovering, as the country insists on pursuing its “living with COVID-19” policy. Despite a surge in Omicron cases, the authorities have not ramped up restrictions to the same extent as last year. It is attributed to the fact that 80% of the Vietnamese population has been fully vaccinated and closer to 50% receiving booster shots.
GDP growth at 6.2%
HSBC has lowered its GDP growth forecast for Vietnam from 6.5% to 6.2% due to inflationary pressures amid rising global energy prices.
In spite of a strong export in exports, Vietnam’s trade surplus in the first quarter of 2022 shrank to a minimal level of only 0.8 billion USD. This result was not unexpected, given the import-intensive nature of its manufacturing sector. However, amid the energy crunch, rising fuel prices are a matter of concern. The country’s imports of crude oil and petroleum in March were double and four times the 2021 monthly averages.
It can be seen that a shrink in trade balance resulted in a decrease of Vietnam's current account advantage. In fact, the country recorded a current account deficit of 1.1% of GDP in 2021, the first in four years. Despite the sharp increase in remittances to Vietnam, a trade surplus of about 5% of GDP is not enough to offset the shortfall of the main source of income and the decline in revenue from tourism.
According to the report, energy inflation continues to gain momentum, consistently driving consumer prices. Overall inflation hit 0.7% month-on-month in March, translating into year-on-year growth of 2.4%. A hike in transport costs remains the main reason. Domestic petrol prices were raised seven consecutive times since early December, reaching a record high in March.
Given a surge in global oil prices, the trend is set to last a while, putting upward pressure on inflation. Considering the high energy prices, inflation is forecast to be 3.7% for 2022, still below the 4% inflation target set by the State Bank of Vietnam, the report said./.
