HSBC projects positive economic growth for Vietnam

08-Oct-2014 Intellasia | TBKTSG | 6:00 AM Print This Post

HSBC Bank in a report released last week painted positive prospects for Vietnam’s economy, saying that the nation would obtain higher gross domestic product (GDP) growth this year based on strong exports and low inflation.

According to the Global Research report, HSBC said Vietnam’s export performance has been enviable. The sector has expanded by 14.1 percent since early this year – an impressive result in the context of lackluster demand across the globe.

The HSBC Manufacturing PMI mirrors this trend as the index has expanded for 12 consecutive months. In the third quarter, the manufacturing sector grew 9.8 percent year-on-year and contributed 1.9 percentage points to the economy’s 6.4 percent year-on-year growth.

In recent years, domestic firms’ trade deficits have narrowed while foreign enterprises’ trade surpluses have picked up, backing stability for the currency and the economy. The growth of the sector has helped offset slowing investments and increase labour demand, HSBC commented.

According to United Nations projections, 93 million people live in Vietnam this year with around 60 percent in the labour force. Both total population and working age group are expected to continue to expand by about 1 percent per year, resulting in more investments and jobs to productively absorb existing and incoming labour.

“In the medium term, we believe labour market, financial, infrastructure and supporting industry reforms are required for growth to be sustainable. Low linkages with foreign enterprises and persistent skilled labour shortages are currently limiting the benefits of foreign direct investment (FDI), especially regarding the acquisition of technology,” it said.

Meanwhile, the European Union-Vietnam Free Trade Agreement (FTA) will likely conclude by the end of the year, if not in early 2015, supporting stronger growth of manufacturing exports. In the year to September, footwear exports had expanded by 24.6 percent while textiles and garments had leapt by 18.6 percent.

The expiration of EU anti-dumping measures on Vietnam leather footwear, labour cost competitiveness with China and anticipation of the Trans-Pacific Partnership have encouraged firms to shift production to Vietnam.

However, HSBC said the big winners of exports have been goods manufactured in Vietnam while commodity-based items have lost value in recent years.

“Rice, rubber, and coal recorded negative growth this year in value. With the imposition of higher tariffs by the US on Vietnamese shrimp, we expect aqua product growth to slow in the latter half of the year from the current growth rate of 22 percent since early this year,” the bank explained.

Besides, a study of trade ownership structure also showed that Vietnam’s domestic firms are losing their competitiveness, a condition that must be addressed in the medium term. Foreign firms that already exist in the country present opportunities for domestic firms to learn new technology, tap into the global supply chain and create jobs and wealth for its unskilled rural population.

All these benefits, however, require proactive government policies to be maximised. Toward this end, policy makers have taken the first step of reducing wasteful investments.

HSBC said it does not expect nominal credit growth to exceed 10 percent this year.

“Headline inflation slowed to 3.6 percent year-on-year in September despite higher education costs. We expect the consumer price index (CPI) to trend sideways in the fourth quarter, ending the year at 3.7 percent year-on-year,” the bank said.


Category: Economy, Vietnam

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