A corner of Ho Chi Minh City (Photo: VNA)Vietnam's economy has started 2022 on a firm footing. Stickingwith a policy to "co-live with the virus," the country hasaccelerated its vaccination drive and gradually removed local restrictions,fuelling consumer sentiment, leading to an ongoing rebound in localconsumption, according to analysts of Markets and Securities Services, HSBCVietnam.
Ngo Dang Khoa, Country Head of Markets and Securities Services,HSBC Vietnam, said the country's total goods retail sales and consumer servicerevenues grew 11.7% year-on-year in Q1 this year, or 7.9% if inflation wasexcluded (1.9% in 2021).
The re-opening from mid-March this year has been especiallycrucial for Vietnam's services recovery.
In the first half of this year, around 602,000 foreign touristsflocked to Vietnam, a clear sign of recovery of around 6.8 times 2021's level.
However, HSBC's analysts expect to see a slow rebound in tourismthis year due to COVID-19, which has a psychological impact on foreigners whofear going abroad and a dwindling desire among consumers around the globe toopen their wallets because of soaring inflation.
Another driving force behind this slow recovery is the tension inRussia and China's "zero COVID" policy, which holds Vietnam's tourismback from a quick bounce back, given these two are its two main sources ofvisitors.
Meanwhile, manufacturing continues to roar, growing at 8.48%year-on-year, and mobile phone component production expanded by 22.2%.
In addition, the PMI rose from 51.7 in April to 54.7 in May,recording a 12-month-high before decreasing slightly to 54 in June.
Thanks to multi-year consistent FDI inflows in tech manufacturing,the country has successfully transformed into a rising global base.
While the pandemic partially disrupted the process, interestremain high. For example, Samsung recently started building a 220 million USDR&D centre in Hanoi, its largest in Southeast Asia, and is set to expandits plants in Bac Ninh and Thai Nguyen provinces.
According to analysts, Apple has had 11 factories of its Taiwanesemanufacturers in its supply chain moved to Vietnam.
Most importantly, Vietnam's key growth engine is set to recoverstrongly as the labour shortage continues to ease. After the Tết holidays, over90% of workers have returned to Ho Chi Minh City.
The country's export grew 17.3% year-on-year in the first sixmonths of 2022. Its second quarter's GDP rose to 7.72% year on year thanks tobroad-based growth, leading to a 6.42% year-on-year growth in the first half ofthis year.
All of these point to a steady recovery in the country. Thus, HSBCnow expects the economy to grow 6.9% (up from our previous forecast of 6.2% and6.6%) in 2022, likely topping the region.
Despite the optimism, headwinds prevail. In particular, Vietnam isfacing multiple challenges given elevated global energy prices. This willincrease its energy bills, deteriorating its terms of trade.
Higher oil prices will raise residents' cost of living, dampeningthe pace of recovery for private consumption, especially when the labour markethas shown signs of recovery.
Global energy inflation continues to pace, pushing domestic petrolprices to new highs. Given elevated global oil prices, they expected the trendto persist, putting upward pressure on inflation. Despite high energy costs,moderate food inflation – given relatively stable local production – has helpedcurtail headline inflation.
Wary ofrisks
A surge in global energy prices remains the biggest risk to thecountry's growth. The most evident impact is Vietnam's increasing energy bills.
Despite strong exports, the trade balance has narrowed to amarginal surplus of only 0.6 billion USD in the first five months of 2022.
This will erode the country's current account advantage, puttingdownward pressure on the Vietnamese dong. Analysts expect Vietnamto run a current account deficit for the second consecutive year, although themagnitude should be smaller than that of 2021.
In addition, stiffening trade headwinds need to be watchedclosely. A rotation of global demand from goods to services and lingeringsupply chain disruptions in mainland China will determine how long Vietnam'sstrong export growth can be sustained.
For one, global consumption is shifting from goods to services. Inaddition, mainland China's supply chain disruptions make it increasinglydifficult for Vietnamese manufacturers to source the materials and inputs usedfor future exports. This will answer how long Vietnam's exports can besustained at such a strong pace.
Even though the Government has issued support packages to help thosemost affected by the COVID-19 pandemic to ensure social security, risinginflation poses an additional challenge to an inclusive recovery. Low-incomehouseholds are disproportionately affected, worsening inequality in the nearterm.
Vietnamto shine in second half of 2022
Vietnam has become the regional top-performing economy thanks toits resilient huge economic potential and quick return post-Covid.
However, China's supply chain disruptions will make itsimport-intensive manufacturing base increasingly challenging. In the first halfof 2022, 94% of its imports came from materials, with China remaining Vietnam'slargest import market.
Approximately 30% of Vietnam's imports came from China, mainlyelectronics (30%) and machines (22%). Therefore, China's supply chainbottlenecks will likely stiffen the headwinds against Vietnam's export growth.
FDI continues to drive Vietnam's economic success story. Thecountry is among the top two ASEAN FDI receivers relative to GDP, highlightingits increasing attractiveness. In recent years, the country has become a risingstar in global supply chains, gaining substantial global market share in sectors,including textiles, footwear and consumer electronics.
The country has climbed up the value chain over the years,becoming a key electronics product manufacturing hub, attracting stable FDIinflows with its sound macro fundamentals, preferential tax incentives and anabundance of relatively cheap and productive labour.
FDI attraction is equally important as sustainability for thecountry. Now that Vietnam has made its ambitious commitment at COP26,sustainability has gained more attention. For example, Vietnam Association OfSupporting Industries (VASI) has suggested refining the quality of FDI, whichmeans non-renewable energy-consuming or environment-unfriendly technologies arenot allowed to enter Vietnam. "Green FDI" will be a key trend that Vietnamshould look out for in the future.
To attract "green FDI", Vietnam has been driving theeconomy towards green growth, sustainability and lower greenhouse gas emissionsthrough National Green Growth Strategy 2021-2030.
The Government has worked out the National Action Plan for2021-2030 to carry out this Strategy, with specific missions and targets foreach sector./.
VNA
