Report notes positive signs in macro-economy but flags foreign exchange reserves and trade deficit as two major risks.
While global trade is not expanding, Vietnam is slowly gaining more global market share thanks to its cheap labor costs, according to an HSBC report on the country’s macro-economic situation released on June 2.
The report showed that, from footwear and textiles to mobile phones, Vietnamese workers are fundamental to rising orders as their cheap cost has made the price or the quality ratio of Vietnamese goods competitive.
New orders rose sharply, to 57 on HSBC’s scale in May from 55 in April. Employment, too, increased, to 53.1 from 51.9. “We believe output will continue to rise in the months ahead, albeit marginally,” the report stated. “Our leading indicator - new orders minus inventories - eased to 3.1 from 3.7. Inventories are rising, reflecting manufacturers’ confidence in future demand.”
HSBC explained that gradually improving domestic demand is also responsible for robust demand for manufacturing goods. After years of deleveraging, credit growth is picking up in first half of 2015. Year-on-year lending expanded 17.5 per cent (for 4.3 per cent growth since end-December 2014).
However, besides the results achieved HSBC also pointed out Vietnam’s economy is facing with two risks: foreign exchange reserves are still low compared with international standards, and the trade deficit is increasing.
Vietnam’s reserves, although rising, are still low by international standards, which require they be at least three months worth of exports to be considered adequate. The government, therefore, should tap into foreign reserves to make up for its funding gap. Liquidity may become an issue, especially at a time when the State Bank of Vietnam (SBV) may need to use its reserves to stabilize the currency.
As for the trade deficit, “If the deficit is more than $10 billion the State Bank will have to use a considerable amount of its reserves to support the currency,” the authors of the report wrote.
- global market share