Ngo Dang Khoa, the head of Markets and Securities Services at HSBC Vietnam, discussed with The Hanoi Times the prospects of Vietnam’s economy in 2022 and what the country should focus on following a turbulent year.

Ngo Dang Khoa, head of Markets and Securities Services at HSBC Vietnam.

Vietnam ended 2021 with lower-than-expected GDP growth of 2.58%, what is your assessment of the country’s economic outlook this year amid uncertainties surrounding the global economy?

We started the year 2021 with a very positive outlook. However, the 4th wave of Covid-19 that flared up in April dealt a blow to the whole country, and of course, the national economy.

Vietnam’s growth in the third quarter of 2021 dramatically dropped by 6.17% compared to the previous year, the sharpest fall since Vietnam first announced its quarterly GDP. The reopening in early October significantly helped boost the economic recovery, driving the growth of the last quarter to 5.22%, much higher than any forecasts.

Although Vietnam ended 2021 with a growth of only 2.58%, the economy’s main drivers are once again robust. We have witnessed the strong resumption of manufacturing and swift recovery of exports after the lockdown. Moreover, Vietnam’s vaccination rate has been improved remarkably in the fourth quarter and early 2022. Currently, 95% of people aged 18 years old and above have been fully vaccinated against Covid-19, while this percentage of the group aged 12 to 17 is 76%.

Given those factors, HSBC Global Research forecasts Vietnam’s GDP in 2022 to be 6.5%, although the spread of Omicron poses risks, locally and globally.

From your view, what are the main drivers for the Vietnamese economy in 2022 and subsequent years? Which risks and challenges that the country should pay attention to?

I think there are three main drivers of the economy in 2022:

Manufacturing: Vietnam is rising as a new manufacturing hub of Asia Pacific, thanks to an abundant supply of laborers and skilled workers that can ensure high-quality output, low labor, and production cost.

Additionally, China’s Covid-19-related restriction policy has cast a shadow over the global supply chain with a fear of sudden disruptions due to prudent prevention measures. As a result, we have witnessed recently several global brands that have increased their investment in their production lines in Vietnam, including Nike, Adidas, Foxconn, Pegatron, Lego, among others. It marks a potential boom in manufacturing in Vietnam. And it, as a result, will drive export growth, the next main driver of Vietnam’s economy in 2022.

Exports: In 2021, Vietnam’s export turnover is expected to reach over US$336 billion, an increase of 19% compared to the previous year. Vietnam also enjoyed a trade surplus of $4 billion last year. The US was Vietnam's largest export market with an estimated turnover of $95.6 billion. It demonstrated the great potential for exports which has created great momentum for 2022. One of the factors that backed the export growth was the FTAs. Vietnam currently has 15 FTAs with many economies in the world, facilitating our export activities.

FDIs: With all labor and cost advantages as well as positive effects of available FTAs, Vietnam welcomed increasing foreign investments to the country. FDI to Vietnam in 2021 reached US$31 billion for the first time, with Singapore, South Korea, and Japan as the top three biggest investors. Processing and manufacturing industries attracted up to US$18 billion, equivalent to over 58% of the total investment. With RCEP becoming effective in early 2022, more opportunities in Vietnam have been opened for international investors, and we expect FDI inflow to Vietnam will continue to rise.

On the other hand, there are some aspects that I suggest we should keep our watchful eyes on:

Firstly, Omicron is still an unpredictable factor. Though it seems to cause milder symptoms than Delta, we still need to be cautious due to its high transmissibility. The positive side is Vietnam’s high rate of vaccination. Therefore, we hope any possible outbreaks in the future can be well controlled, with targeted restrictions or lockdowns, rather than the indiscriminate restrictions that can leave negative impacts on the economy.

Secondly, the surging energy prices and their implications like the impacts on the transport cost, which is the main driver for local inflation. Though we expect headline inflation to grow 2.7% in 2022 which remains within the State Bank of Vietnam (SBV)’s 4% inflation ceiling, this is worth monitoring.

What are your recommendations for Vietnam to ensure a speedy socio-economic recovery, and eventually realize the GDP growth target of 6-6.5% set by the National Assembly?

Vietnam’s Government has issued a series of fiscal, monetary, and other macroeconomic policies, of which total value in 2020 and 2021 was estimated to be about 4% of GDP. Particularly in 2021, there were several fiscal and monetary policies such as tax reduction (reducing or waiving corporate income tax, personal income tax, and value-added tax), debt rescheduling, interest rate adjustment, unemployment support, among other measures with a total value of about $10.45 billion, equivalent to 2.48% of GDP. Those policies are aimed at removing challenges for businesses and supporting the most vulnerable groups of people in society.

For the economy’s recovery and continued growth, the Government needs more long-term solutions for structure reform, improving competitiveness, and creating "antibodies" for the economy in the face of future challenges. The Government should encourage and incentivize creativity and digitalization-based business models to improve productivity.

In 2021, we experienced serious supply chain disruption and its severe effects, therefore, labor market recovery should be a priority in 2022. This will help address human resources demand for the recovery in key industries such as manufacturing and exports. Besides, improvement of the inter-regional connectivity should be another priority as it will create a required smoothness that supports trade and reduce logistics costs for businesses in particular and the economy in general. At the same time, Vietnam should also continue to pursue a flexible foreign exchange rate policy to stabilize the macroeconomy, the financial market, and control inflation.

Thank you for your time!