HSBC Global Research adjusts growth estimates, which remain among the highest in the region.
HSBC has downgraded its 2016 and 2017 economic growth forecasts for Vietnam to 6.3 per cent and 6.6 per cent, respectively, from 6.7 per cent and 6.8 per cent previously, according to the Vietnam at a Glance report from HSBC Global Research, released on April 5.
The bank pointed to two main factors. Firstly, at 5.6 per cent year-on-year, growth in the first quarter of 2016 was much weaker than it expected. Secondly, newly-proposed administrative tightening measures should keep credit growth contained, resulting in a moderation in investment relative to 2015.
“The weaker-than-expected first quarter of 2016 GDP automatically establishes a lower foundation for full-year growth,” the bank assessed. “However, our more conservative growth forecast also reflects the risks that many of the factors that crimped growth last quarter may last a while longer.” Table 2 shows there were notable declines in the growth contribution from the agriculture, construction, real estate, and financial services industries.
Growth in the real estate and financial services industries is also unlikely to pick up significantly, the bank predicted, and the administrative tightening measures should keep credit growth from overheating and result in a moderation in investment relative to 2015.
Not a bad thing
A “slower” growth profile is likely to prove more sustainable and allow Vietnam the space to rebuild its macro-economic buffers, the report stated. For one, the more moderate path for domestic demand implies smaller current account deficits representing 0.7 per cent of GDP in 2016 and 1.3 per cent of GDP in 2017, from an estimated 0.3 per cent of GDP in 2015 (Chart 3).
Coupled with robust foreign direct investment (FDI) inflows and an expected slowdown in capital outflows, this should help keep Vietnam’s overall balance of payments in surplus in 2016, enabling the State Bank of Vietnam (SBV) to build up its foreign exchange reserves, which remain too thin to protect against external shocks (Chart 4).
According to the latest International Monetary Fund (IMF) data, Vietnam’s foreign exchange reserves had fallen to $29.9 billion as at November 2015. “We estimate that they fell further to $28.6 billion, or 1.9 months of import cover as of end-2015,” the report noted.
“The lower growth trajectory notwithstanding, our latest forecasts still put Vietnam’s growth rate among the highest in the region,” it emphasized.
Domestic demand, while slowing in relation to 2015, is likely to remain firm and Vietnamese exports are expected to continue grabbing global market share, ensuring solid medium-term growth.
“It may be too early to tell, but the recent moves by the SBV suggest that the pendulum is swinging back to macro-economic stability,” the report stated, and “a cautious approach will pay dividends down the road, since it ensures a more sustainable recovery and buys authorities time to pursue the broader reforms necessary to build a stronger foundation for Vietnam’s long-term growth.”