HSBC expects Vietnam economy to expand 5.5pc

“While we paint a rosy picture for manufacturing in the short and medium-term, the economy faces significant challenges, particularly in terms of the domestic-oriented sectors,” HSBC economist Trinh Nguyen wrote in the bank’s latest report on the Vietnamese economy for H1.

Vietnam’s GDP rose 5.25 per cent in the second quarter compared to the same period last year, and up against the 5.09 per cent seen in the first quarter, reported the General Statistics Office. The economy grew by a total 5.18 per cent in the first half.

Given HSBC’s expectation of 5.5 per cent for the year, the second half will have to pick up the pace.

Vietnam’s HSBC Purchasing Managers’ Index shrunk in June from 52.5 to 52.3 due to weaker external demand. Meanwhile the manufacturing sector in the second quarter grew by 9.1 per cent against the same period last year and considerably compared to the 6.5 per cent seen in this year’s first quarter.

The report added that Vietnam’s manufacturing and exports would likely accelerate in the coming time, but domestic demand would continue to be sluggish.

Vietnam’s exports have risen 14.9 per cent this year so far and HSBC said that with external demand rebounding, the country’s exports will likely see commensurate growth. In the medium-term, initiatives such as the Trans Pacific Partnership (TPP) should further open up market access and allow Vietnam’s strongest sectors to be competitive in the global market, the report noted.

It said labour-intensive manufacturing and agriculture would likely thrive, allowing both businesses and people to earn more and invest in better technology to move up the value chain.

HSBC expects inflation to rise marginally in the third quarter against June’s 5 per cent on-year due to higher energy and social service costs. However, Q4 CPI is expected to slow and end the year at 5.5 per cent. Meanwhile, the OMO (open market operation) rate set by the central bank is expected to remain steady at 5 per cent through the rest of this year, as subdued domestic demand is no longer an interest rate issue. Vietnam’s credit growth was 2.3 per cent as of June.