Healthy growth should come despite difficulties.
HSBC has forecast Vietnam’s economic growth at 6.1 per cent in 2015 and the budget deficit at 6 per cent or more of GDP.
It will be a difficult year, according to the recently-released HSBC macroeconomic report, but the economy should achieve strong growth.
HSBC believes growth will be due to four key pillars: foreign direct investment (FDI); the recovery of the country’s largest export market, the US; efforts to liberalize trade in Vietnam; and falling fuel prices
Low demand and the falling crude oil price may negatively affect the export of raw materials from Vietnam, but an increasingly diverse export structure and a lower dependence on raw material items will mean the manufacturing industry will account for a greater proportion of the export structure.
FDI inflows in 2014 were stable, with the country attracting $20.2 billion in registered FDI and disbursing $12.4 billion. Most investments are located in the manufacturing sector and are converting the country’s export structure. “We expect exports to rise 12 per cent in 2015,” the report states.
The Purchasing Managers Index (PMI) reached 52.7 points in December compared to 52.1 points in November, showing a better business environment resulting partly from Vietnam’s international integration.
HSBC also warned that difficulties face Vietnam in the medium and long terms.
The government is now less inclined to seek financial support from China and so should seek new ways to fund local projects in critical infrastructure. Bad debts and the shortage of skilled labor also need to be addressed.
Funding for infrastructure projects is a huge concern. Budget revenues will be affected by declining crude oil prices in 2015. HSBC forecasts that the budget deficit will be about 6 per cent of GDP; higher than the government’s target of 5 per cent.
In the medium term, HSBC said that Vietnam should solve problems relating to links between domestic enterprises and their foreign counterparts, developing a clear strategy for the economy when cheap labor is no longer a significant competitive advantage.