Lender HSBC has raised its growth forecast for Vietnam from 6.6 percent to 6.9 percent thanks to the country’s broad-based recovery from two years of Covid-19 impacts.
Fading Omicron risks and easing of restrictions have set the basis for Vietnam’s return to normalcy, with GDP growth in the second quarter hitting 7.7 percent year-on-year, a regional outperformer, the bank reported Wednesday.
Services, which once bore the brunt of an economic hit, have seen a meaningful recovery, while tourism-related and consumer-facing services have largely benefitted from sustained re-openings.
Retail sales overshot 17 percent year-on-year in the second quarter, signalling a return of rebounding household consumption.
Vietnam welcomed 0.5 million visitors in the second quarter, almost five times more than those in the first quarter, taking total tourists to 0.6 million in the first six months.
Manufacturing continues to roar, with industrial production growth accelerated to over 25 percent year-on-year in the second quarter.
This helped export growth hit over 20 percent year-on-year in the second quarter, a third of which came from firm computer and smartphone shipments.
However, the impact of high energy prices is becoming increasingly clear, HSBC said.
Elevated commodity prices have turned the trade balance into a deficit in the second quarter, likely exacerbating the deteriorating current account.
Despite a firm rebound in household consumption, high oil prices would likely take a bite out of residents’ wallets, dampening the pace of its continued recovery.
“Given elevated global oil prices, we expect upward pressures to inflation to persist,” the report said, adding that inflation could hit 3.5 percent this year and exceed 4 percent from the last quarter this year to the second quarter next year.
With surging energy prices considered, the bank trimmed its Vietnam growth forecast for 2023 from 6.7 percent to 6.3 percent.
Vietnams’ GDP expanded by 2.6 percent last year. The government targets 6-6.5 percent this year.