Bank report notes manufacturing continuing to develop but warns CPI on the rise.
HSBC has attributed the resilience of Vietnam's manufacturing sector to the country's rising attractiveness as a manufacturing hub, which helped bring in record foreign direct investment (FDI) in 2015 and should boost exports in 2016, despite the weaknesses in global trade.
In a report released on March 2, HSBC Vietnam added that robust domestic demand also helps, with a pick-up in investment and private consumption leading to a sharp improvement in GDP, to 6.7 per cent in 2015 from 6.0 per cent in 2014. The bank expects the economy will continue to expand at between 6.7 per cent and 6.8 per cent over the next two years.
All around the region exports are deepening but Vietnam's manufacturing sector has proven more resilient than most, according to the report. “In February the Nikkei manufacturing PMI held up above the waterline at 50.3, though the pace of expansion slowed from January”, and “Export orders picked up, while employment remained firm.”
Last year the manufacturing sector grew 10.6 per cent and contributed 1.6 percentage points (ppts) to the 6.7 per cent rise in GDP, and manufacturing output will remain steady in 2016 and may see a 10.7 per cent pick-up.
Additionally, HSBC believes that both external and domestic demand should stay robust after slowing to 7.9 per cent in USD terms in 2015. It also expects exports to return to double-digit growth as new investment comes online. Encouragingly, after surging to a record high in 2015, FDI continued to flow into the country in the first two months of 2016, with registered capital reaching $2.8 billion as at February, representing a 135 per cent year-to-date gain year-on-year.
However, the pick-up in economic activity is beginning to translate into a gradual rise in inflationary pressure, HSBC warned, as headline CPI rose to 1.3 per cent year-on-year in February from 0.8 per cent in January.
While energy continues to curb the increase, with the transportation component falling 7.2 per cent year-on-year in February, this was more than offset by an acceleration in food prices of 2.4 per cent year-on-year in February versus the average of 0.9 per cent in the last three months. “With base effects turning more favorable in March, we don't think February's rapid acceleration will be sustained,” HSBC Vietnam said.