Photo: Duc Anh
Latest Vietnam at a Glance report notes concerns but also identifies a range of positives for GDP growth in the second half.
HSBC has put Vietnam’s GDP growth at 6.3 per cent in 2016 and 6.6 per cent in 2017 in its Vietnam at a Glance report released on August 9.
The economy grew 5.6 per cent year-on-year in the second quarter, unchanged from the first quarter and down just a touch on forecasts of 5.8 per cent. The weather was the main culprit, as Vietnam experienced its worst drought in three decades, which brought agricultural output down by 0.8 per cent year-on-year in the first six months.
The decline in agriculture also negatively affected consumer spending, as Vietnam has 24 million agricultural workers, or nearly half its workforce.
Macroeconomic factors also impacted on the 6.7 per cent figure targeted by Vietnamese authorities. “The space for fiscal easing is constrained,” HSBC wrote. “A lack of progress on revenue expansion, coupled with weak oil prices, means that the budget deficit is likely to remain elevated, limiting the government’s ability to boost capex. This year we forecast the budget deficit to widen again to 6.6 per cent of GDP, causing the public debt-to-GDP ratio to approach the National Assembly’s limit of 65 per cent.”
The upside risks to inflation also mean that the room for monetary easing is rather limited. Come the third quarter of 2017, HSBC believes the State Bank of Vietnam (SBV) will likely raise the OMO rate by 50 bps to 5.5 per cent, to rein in inflation.
Credit growth, on the other hand, reflects solid domestic demand (in particular investment) and is expected to surpass the growth target of 18-20 per cent.
HSBC also added that manufacturing, services and other non-agriculture sectors are reasons for optimism about Vietnam’s economy in the third quarter. The manufacturing sector, represented by the PMI, saw robust development despite declining GDP. “According to Markit’s PMI survey, Vietnam’s manufacturing sector continued to expand in the second quarter,” HSBC wrote. The PMI was 51.9 in July, above the neutral 50.0 mark, for the eighth consecutive monthly improvement in business conditions in the sector.
The construction and services sectors remained robust, up 8.8 per cent and 6.4 per cent year-on-year, respectively, year-to-date, the report noted.
“In the year-to-July, exports rose 5.3 per cent y-o-y, driven largely by shipments of phones and spare parts but also computer and electrical components, textiles and garments, as well as footwear” HSBC wrote.
While the expansion in manufacturing was not as strong as in June, when the PMI was 52.6, the overall resilience and overseas demand continues to support its improvement, as reflected by new orders and new export orders subcomponents, according to Mr. Frederic Neumann, economist at HSBC.
“As growth in the Vietnam’s economy continues to outpace much of the region, FDI inflows have been strong, in turn helping the economy capture a greater share of the global export market even as global demand slows,” HSBC analysts believe.
Vietnam’s manufacturing sector activity also continues to show solid performance. The expansion seen in manufacturing in July remained the strongest among emerging Asian economies, with India a very close second.
“Vietnam’s manufacturing output also increased for the eighth straight month, albeit by the slowest rate in four months,” according to the report. “Production of both consumer and investment goods rose but that of intermediate goods declined. In line with higher new orders, firms continued to hire extra staff, though the rate of job creation in July was the weakest in four months. Meanwhile, backlogs of work receded for a fourth month, though this was attributed to productivity improvements and the imminent completion of projects.”