HSBC has revised Vietnam’s GDP growth forecast for this year from 6.5% to 6.2% amid the elevated global energy prices, but the country “remains one of the regional outperformers.”

Cargo handling at Haiphong port. Photo: The Hanoi Times

The figure remains within the target range set by the Government at 6-6.5% for this year.

According to the bank’s latest report, Vietnam is facing multiple challenges from the current oil price situation, which would lead to an increase in energy bills and deteriorate the country’s trade position.

Crude oil and petroleum imports in March alone doubled and quadrupled their respective 2021 monthly average. As the trend will likely shrink Vietnam’s external metrics, HSBC expects Vietnam to run a second consecutive current account deficit, albeit at a modest rate of 0.2% of the GDP.

On inflation, HSBC raised its forecast to 3.7%, taking into account high energy prices.

“This will increasingly call for the need for monetary normalization. We expect the State Bank of Vietnam (SBV) to deliver the first 50bp rate hike in the third quarter of 2022,” it added, expecting the policy rate to be 4.5% by the end-2022.

“Fortunately, inflation remains broadly manageable in Vietnam compared to other emerging markets, given that food prices and demand-led price pressure have so far been contained,” said the report.

Meanwhile, retail sales have rebounded sharply from last October’s troughs, but their growth was still slow at 2.5% year-on-year in the first quarter. Higher oil prices will raise residents’ cost of living, dampening the pace of recovery for private consumption, especially when the labor market has shown signs of recovery.   

Despite the challenges ahead, HSBC noted Vietnam saw a rosy start to 2022, with its first-quarter GDP growing firmly by 5.0% year-on-year, thanks to a broad-based recovery.

“For one, its external engine is once again on fire,” stated HSBC, adding that not only does it continue to benefit from an extended tech cycle, but other key sectors have also shown strong performance. In addition, private consumption continues to rebound, albeit slowly.

More encouragingly, Vietnam has joined its peers to re-open its borders from mid-March, paving the way to revive its damaged tourism sector, it said.