Vietnam’s economy on track for 6.5 per cent growth despite Typhoon Yagi, says HSBC

Vietnam’s economic recovery is steadily firming up in 2024, with HSBC maintaining its forecast of 6.5 per cent GDP growth for both 2024 and 2025 in the bank's latest report on September 29.

Specifically, the second quarter saw a stronger-than-expected expansion of 6.9 per cent on-year, driven primarily by the manufacturing and export sectors. However, the domestic economy is still catching up, with retail sales growth lagging behind pre-pandemic levels.

The external sector’s recovery has broadened beyond consumer electronics, as manufacturing continues to rebound. HSBC highlights that PMIs have registered five consecutive months of expansion, with industrial production also seeing strong growth in key industries like textiles and footwear. These improvements have contributed to double-digit export growth, supported by structural factors such as expanded market access for Vietnamese agricultural products.

However, the domestic sector remains a point of concern.

"Retail sales growth is slower than initially anticipated, although the government’s fiscal measures, including cuts in environmental taxes on fuel and reductions in value-added taxes for select goods and services, are expected to improve consumer confidence," HSBC noted. "The revised Land Law, which came into effect in August, is also starting to have an impact, already contributing to increased foreign investment, particularly in real estate."

Despite these positive developments, Vietnam faces challenges, particularly in the aftermath of Typhoon Yagi, which caused an estimated $1.6 billion in damage when it made landfall in September. Widespread flooding and damage to factories, warehouses, and power infrastructure are expected to have lingering effects. Nevertheless, Prime Minister Pham Minh Chinh has reaffirmed the government’s commitment to its ambitious 7 per cent growth target for 2024, which exceeds HSBC's more conservative forecast.

Inflation, on the other hand, is showing signs of improvement. HSBC expects inflation to remain manageable, maintaining its forecast at 3.6 per cent for 2024, well below the State Bank of Vietnam’s 4.5 per cent ceiling. The easing of energy price pressures and a potential US Federal Reserve rate cut cycle are likely to relieve some exchange rate pressures.

Vietnam’s tourism sector is also playing a key role in the recovery. The country has welcomed over 11 million international visitors so far this year, with tourism sales surging by 26 per cent in the first eight months of 2024. Nonetheless, there is room for further growth, particularly with mainland Chinese tourists still requiring visas to enter Vietnam, despite accounting for one-third of arrivals pre-pandemic.

Looking ahead, Vietnam’s digital economy is set to be a major growth driver, with HSBC noting that the country is on track to become the second-largest digital economy in ASEAN by 2030. While challenges remain in human capital and infrastructure development, the government and private sector are working to address these areas.

IMF predicts Vietnam's economic growth to reach 6.1 per cent in 2024 Vietnam's economic growth is projected to recover to 6.1 per cent in 2024, supported by continued strong external demand, resilient foreign direct investment, and accommodative policies, according to International Monetary Fund (IMF).