HCMC – Vietnam’s economy is projected to perform better than expected in the final quarter of the year if the State Bank of Vietnam (SBV) continues to provide monetary policy support, according to a recent report by HSBC Vietnam.
The report has revised the economic growth forecast for Q4 by 0.1%, now estimating it to be 7.3%. This positive outlook can be attributed to the SBV’s efforts in boosting the economy by reducing financing costs for businesses and households through relaxed monetary policy. This move aims to stimulate business investments and support consumer confidence.
In the first half of the year, the SBV has already lowered key interest rates by 150 basis points and plans to further reduce them by an additional 50 basis points in Q3. These actions will bring Vietnam’s key interest rates down to 4%, undoing all tightening measures implemented in 2022 and aligning with the rate cuts made during the pandemic.
However, if economic growth rebounds sooner than expected, additional key interest rate cuts may not be necessary in the second half of the year.
HSBC predicted that the economy will grow by 5% in 2023, which is 20 basis points lower than the previous estimate, mainly due to the possibility of a prolonged and more severe trade downturn.
So far this year, Vietnam’s exports have declined by over 10% compared to the previous year, with significant drops seen in key sectors such as electronics, textiles and footwear, machinery, and wooden furniture. Exports to the U.S., Vietnam’s largest export market with a 30% share, have plummeted nearly 20% year-on-year.
Nevertheless, the services sector continues to show resilience, helping alleviate the economic challenges. However, there is a noticeable disparity between high-value items like automotive sales and tourism-related services.
Car sales, for instance, have experienced a year-on-year decline of over 40% on a 3-month-moving average, similar to the figures recorded during the 2021 lockdown, indicating the impact of weaknesses in the external sector on private consumption.
On the tourism front, Vietnam has seen almost one million tourists in the past two months, equivalent to 70% of the levels in 2019. While Korea has rebounded to 80% of pre-pandemic levels, China stays at only 35%.
However, the situation is expected to improve as Vietnam has increased the number of direct flights to China, currently operating at around 40% of 2019 levels. This places Vietnam as the second highest in ASEAN after Singapore, which is at 53%.
Furthermore, efforts to boost tourism, such as considering relaxation on visa restrictions by the National Assembly, are expected to provide a significant boost in the fourth quarter.