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HSBC revises GDP growth downwards

Released at: 14:33, 11/10/2016

HSBC revises GDP growth downwards

Photo: Duc Anh

Forecasts for 2016 and 2017 come down but bank positive about 2018 growth.

by Luong Nhi

HSBC pared back its forecasts for Vietnam’s GDP growth this year to 6.2 per cent from 6.3 per cent and to 6.5 per cent from 6.6 per cent in 2017 in its latest Asian Economics report.

It also expects the economy will outperform in the near term and has penciled in a 6.6 per cent growth rate for 2018.

“Vietnam’s economy picked up the pace in the third quarter, expanding by 6.6 per cent year-on-year,” the report said. This is a sharp improvement from the 5.6 per cent growth registered in the earlier quarters of the year, it wrote.

The report pointed out that manufacturing and exports continue to be the twin bright spots of the economy. Both internal and external demand accelerated during September, as did output and employment. “In fact, employment rose at its fastest pace over the last five years” it added. This, and the fact that firms are trying to build inventories, suggests that manufacturers remain optimistic.

The external sector also remains resilient. “Exports rose by 9.0 per cent year-on-year in September, again outpacing regional peers,” according to the report. During the first nine months of the year Vietnam received about $11 billion in FDI, up 12.4 per cent year-on-year.

“With new factories commencing operations this year, we expect such FDI to drive further gains in exports,” the bank’s analysts wrote. “Vietnam remains highly competitive, especially in apparel and electronics assembly, and should gain further global market share even as world trade remains lackluster.”

The country’s banking sector continues to pose challenges and is still grappling with the legacy of bad debts and now once again sees soaring credit growth. “As at June, the official, impaired loan ratio was 2.6 per cent,” the report stated. There is still $8.9 billion of bad debts stuck at the Vietnam Asset Management Company (VAMC), the State-owned company set up to facilitate the disposal of bad debts.

The TPP, which has not been ratified by the US Congress, poses another risk for Vietnam. “Vietnam is deemed to be one if the biggest winners from the TPP but the Vietnamese Government has opted to delay the ratification of the TPP, reflecting tactical considerations, given that the TPP is caught up in the US Congress and presidential politics,” the bank said.

Inflation has been ticking up all through the year, rising to 3.3 per cent in September. “Although it looks set to average below the 5.0 per cent target for 2016, many upside risks exist,” the report noted. Such risks include unfavorable weather and soil conditions, recovery in fuel prices, and increases in costs of key services like education and healthcare.

Finally, the space for fiscal easing is also quite small, the bank said. According to the National Financial Supervisory Commission (NFSC), the budget deficit as at August 15 is equivalent to about 44 per cent of the estimate for the entire year. “The pressure on the budget deficit will likely increase in the remaining months of the year as infrastructure investment is expected to accelerate following a government resolution to this effect,” the bank said.

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