Following Vietnam’s full reopening, HSBC experts have moved to raise the Vietnamese GDP growth forecast for this year to 8.1%, although they also lowered the country’s growth forecast for 2023 to 5.8%.
Despite facing challenges such as the impact of reopening and high inflation globally, the nation is predicted to continue to lead ASEAN in terms of growth.
According to details given by HSBC, this year has seen an impressive economic recovery, a factor that has made the country continue to be one of the outstanding growth nations throughout Asia.
In the third quarter of the year, the country’s GDP grew by 13.7% on-year, largely due to a solid external sector coupled with strong domestic demand. However, this growth outlook has become gloomy due to mounting trade obstacles.
After witnessing export growth exceeding 17% annually, the country’s exports plummeted in October and November. Specifically, the economic downturn in the United States has caused the situation to become even more difficult, particularly as the US is the largest market for several export items from Vietnam.
One positive bright spot is that domestic demand has bounced back due to the continued recovery of the labour market. Although visitors have started to return, the number of visitors to the country remains less than 20% compared to 2019.
In terms of policy, HSBC experts believe that there is not much fiscal space in which Vietnam can apply easing measures in order to mitigate the impact of high energy prices. Since April, management agencies have moved to reduce a number of taxes, including fuel and environmental taxes.
In response to rising inflationary pressures, the Ministry of Finance is therefore seeking to extend the application period of the current environmental protection tax cuts for some fuels until the end of 2023.
This move shows that with global oil prices potentially falling in 2023, the authorities may choose to reinstate the environmental protection tax as early as 2024.
Moreover, other energy prices are anticipated to rise next year as the Electricity of Vietnam (EVN) recently proposed plans to raise electricity prices ahead in 2023, the first major adjustment made in nearly four years.
With regard to currency, the State Bank of Vietnam has actively caught up with the general trend as a means of coping with the depreciation of VND and rising import inflation.
Currently, external factors have become increasingly favourable over recent weeks as the US Federal Reserve (Fed) is likely to slow down the interest rate hikes and ease the pressure placed on foreign exchange rates.
However, the increase in core inflation further proves that the interest rate increase cycle of the State Bank remains on track. Therefore, HSBC forecasts that the State Bank will raise the refinancing interest rate by 50 basis points in the first quarter of 2023 and the second quarter of 2023, as well as hiking the refinancing rate to 7% by mid-2023.
HSBC experts stated that Vietnam has already started to witness stronger inflation pressure, with a domestic energy shortage anticipated moving forward.
Although HSBC recently slightly lowered its inflation forecast for the year to 3.2% from the previous prediction of 3.4%, it has also raised its forecast for 2023 to 4%.
