HSBC raises Vietnam's 2024 GDP growth forecast to 6.5 per cent

Vietnam's economy has shown promising signs of growth with a broadening recovery across sectors, highlighted by significant GDP acceleration and strong foreign investment inflows.

According to HSBC's latest report, Vietnam concluded Q2/2024 with a surprising GDP growth acceleration of 6.9 per cent on-year, significantly surpassing market expectations of 6 per cent.

"This robust performance signals a broadening recovery across various sectors. While the tech sector continues to lead the charge, other industries are also rebounding. Notably, tourism-related services have shone, with Vietnam welcoming over 8.8 million tourists in the first half of 2024. However, domestic sectors are lagging behind their external-facing counterparts, a trend expected to persist into Q4/2024," the report noted.

Unlike growth, inflation remains a pressing concern. Despite lower oil prices providing some relief, higher pork prices due to ongoing African swine fever (ASF) have kept inflation elevated.

The Ministry of Agriculture and Rural Development has urged measures to combat ASF, which has led to the culling of nearly 10,000 pigs, or 40 per cent of the national total. Although inflation peaked at 4.3 per cent on-year in June, it is expected to subside in the second half of 2024, barring no further ASF outbreaks. HSBC's forecast for inflation is an average of 3.6 per cent for 2024.

Given the stronger-than-expected performance in the first half of 2024, the bank has upgraded its annual GDP growth forecast for Vietnam to 6.5 per cent from the previous 6 per cent. This adjustment positions Vietnam to reclaim its title as ASEAN’s fastest-growing economy, a distinction it lost in the past two years. The Q2/2024 GDP growth of 6.9 per cent, nearly a two-year-high, coupled with a small upward revision in Q1 growth, pushed the first half growth to 6.4 per cent on-year.

The manufacturing sector provided the most significant upside surprise, expanding by 10 per cent on-year, with Q2 exports growing 15 per cent on-year. The recovery in the trade sector, led by electronics, is now showing signs of broadening. Exports of textiles and footwear have bounced back, demonstrating double-digit growth. Sentiment among manufacturers is notably positive, with June’s PMI rising to 54.7, the highest level in two years. This highlights the growing confidence within the sector, which is a positive indicator for the overall economy.

On the other hand, Vietnam's long-term foreign direct investment (FDI) prospects remain bright, with new FDI continuing to pour into Vietnam. In the first half of 2024, new registered FDI reached close to $10 billion, accounting for 4 per cent of GDP. While manufacturing continues to dominate, the real estate sector has also shown robust growth. Notably, investment from ASEAN peers, particularly Singapore, has been significant, with companies like CapitaLand planning substantial investments in Vietnam. This influx of investment is expected to further bolster Vietnam's economic growth and development.

"Tourism-related services have maintained positive momentum, with Vietnam attracting over 8.8 million tourists in the first half of 2024, surpassing pre-pandemic levels. However, retail sales growth has yet to return to pre-pandemic trends, currently trailing by an estimated 10 per cent. The spillover effect from the external recovery is expected to bolster the domestic sector more forcefully in Q4/2024. This anticipated improvement in the domestic sector is crucial for sustaining the overall economic recovery," HSBC stated.

Government policies, such as the extension of the VAT cut from 10 per cent to 8 per cent and fee reductions for selected industries, aim to support the domestic sector. These measures are intended to stimulate domestic consumption and provide a buffer against external economic fluctuations.

The continuation of the trade recovery and its impact on the domestic sector will be key factors to monitor. Despite inflation concerns and FX volatility, the State Bank of Vietnam is likely to maintain its policy rate at 4.50 per cent for the year. As the economy continues to recover, it will be essential to observe how these dynamics evolve and influence Vietnam's economic trajectory.

6 per cent growth in GDP achievable, says Shinhan expert Bui Thi Thao Ly, head of Research at Shinhan Securities Vietnam, talked with VIR's Thuy Vinh about the factors instrumental to an improved stock market performance for the second half of the year.