Bank paints a promising picture in "Vietnam at a Glance: Great Expectations" report.
Vietnam will certainly achieve its growth target of 6.7 per cent in 2016, HSBC states in its latest report “Vietnam at a Glance: Great Expectations”, released on January 6.
The country’s strong growth is set to continue but macro policy management could become difficult.
Export growth is expected to rebound to double digits, reflecting new investments. Meanwhile, domestic demand should remain firm thanks to robust private spending, which should be helped by still-low interest rates.
Strong FDI flows
Strong FDI flows are expected to support acceleration in exports. Macro policy management will likely be harder, as continued strong growth gradually stokes price pressures. HSBC expects exports to return to double-digit growth even as global growth remains lackluster, predicting a mere 0.1 ppt rise in global GDP, to 2.5 per cent.
Disbursed FDI rose to a record high $14.5 billion in 2015, up 17.4 per cent from the previous year. “We expect the number to rise further in 2016, reflecting improvements in the investment climate (including the potential relaxation of foreign investment restrictions),” the report stated.
New investments, coupled with continued market share gains in key products, such as electronics, footwear, and textiles and apparel, should boost Vietnam’s shipments, even if global demand remains soggy.
In 2015 tech exports jumped another 34 per cent to reach $48 billion, thanks to steady investments by multinational businesses, which were attracted by Vietnam’s fast growth, low wages, and large and eager workforce.
Inflation up again
With growth having firmly shifted gears to the 6-7 per cent range, the bank forecasts inflation to rebound emphatically in the second half of the year, though the uncertainty around this outlook is quite high, given the difficulty of forecasting the path of oil prices.
Growth has been shifting to a higher gear, while inflation has stayed contained
Another source of uncertainty is gauging to what degree productivity increases may be contributing to the lack of core inflation momentum. It’s possible that new investments, especially in the manufacturing sector, may have helped raise both labor and total factor productivity, though it’s hard to confirm this given issues around the reliability of employment data.
Together with base effects from stabilizing oil prices and a likely pick-up in food inflation, HSBC forecasts headline inflation to rise to 3 per cent year-on-year by the end of the first half and hit 5.1 per cent year-on-year by the second half, breaching the central bank’s target.
Crunch time for reforms
One event that could prove pivotal to Vietnam’s long-term economic prospects is the upcoming National Party Congress (NPC) XII, scheduled from January 21 to 28. The NPC will be the focus as the new leadership provides clues about the reform outlook.
Of the various duties of the NPC, the two that are likely to be most significant to Vietnam’s economic management are the election of the new Central Committee and national leadership team, and the adoption of a new Socio-Economic Development Plan (SEDP) for the next five and ten years (2016-2025).
Vietnam’s potential is no doubt great, and HSBC remains positive about the short-term outlook for the economy. However, numerous issues and potential obstacles remain if growth is to be sustained in the long run.