Vietnam remains on bumpy path of recovery in April: HSBC
Vietnam continued its bumpy path of recovery in April, in part reflecting the highly uncertain global environment, according to the April report “Vietnam at a glance” released recently by HSBC.
The report outlined that despite growing confidence of a cyclical recovery in the global trade cycle, peripheral risks are keeping near-term sentiment relatively cautious. In line with this, several exporters have noted concerns stemming from the Red Sea disruptions for trade with Europe. Unsurprisingly, textiles and footwear exports, for which Europe makes up a major destination, stalled in its recovery, falling almost 3% on-year .
Think tanks have therefore analysed that an expansion of Vietnamese manufacturing capabilities through robust FDI inflows should provide a further tailwind to record a stronger cyclical rebound when the broader trade cycle picks up.
New FDI to the manufacturing sector enjoyed an annual increase of 50%, while FDI disbursements also rallied to a multi-year-high, exceeding US$6 billion in the first four months. Elsewhere, Apple, which has already invested close to US$16 billion, has announced its intention to further boost its investment in the Vietnamese market after its CEO Tim Cook recently visited the country.
While the demand for goods is still recovering, demand for tourism services has been rising. In part thanks to the easing of its visa policy last year, the country has welcomed well over six million international tourists so far, suggesting that 17 million to 18 million target by the year-end is comfortably within reach. In fact, its monthly recovery rate has been the highest in ASEAN since February.
Despite this, given the intensifying regional competition to attract tourists, HSBC believes that measures such as expanding the visa exemption list, which remains under consideration, will be important in sustaining the currently level of momentum.
Furthermore, inflation appears to be an imminent concern. Headline inflation rose by 0.1% on-month, pushing the on-year print to 4.4%, in line with consensus of HSBC at 4.4%.
This marks the first time in more than 18 months that inflation has been approaching so close to the SBV’s 4.5% inflation ceiling. Similar to the previous episodes, the main drivers are higher oil prices and elevated food inflation.
According to economists, the former reminds them of how acutely sensitive the nation is to volatility occuring in the international commodity market, whereas the latter suggests that even an exporter like Vietnam cannot be insulated from high food costs.
Experts anticipate that inflation will breach the 4.5% ceiling in Q2, but this should only be briefly, before likely dropping below 4% in Q3.
Moreover, a rate hike in the face of still-subdued credit growth would be negative for nascent economic growth, with this not being a solution which can support the currency. As a result, they do not expect the SBV to move.
Illustrative photo
Experts assessed that exports had risen encouragingly by 10.6% on-year, with this mainly being driven by electronics, up 20% on-year.The report outlined that despite growing confidence of a cyclical recovery in the global trade cycle, peripheral risks are keeping near-term sentiment relatively cautious. In line with this, several exporters have noted concerns stemming from the Red Sea disruptions for trade with Europe. Unsurprisingly, textiles and footwear exports, for which Europe makes up a major destination, stalled in its recovery, falling almost 3% on-year .
Think tanks have therefore analysed that an expansion of Vietnamese manufacturing capabilities through robust FDI inflows should provide a further tailwind to record a stronger cyclical rebound when the broader trade cycle picks up.
New FDI to the manufacturing sector enjoyed an annual increase of 50%, while FDI disbursements also rallied to a multi-year-high, exceeding US$6 billion in the first four months. Elsewhere, Apple, which has already invested close to US$16 billion, has announced its intention to further boost its investment in the Vietnamese market after its CEO Tim Cook recently visited the country.
While the demand for goods is still recovering, demand for tourism services has been rising. In part thanks to the easing of its visa policy last year, the country has welcomed well over six million international tourists so far, suggesting that 17 million to 18 million target by the year-end is comfortably within reach. In fact, its monthly recovery rate has been the highest in ASEAN since February.
Despite this, given the intensifying regional competition to attract tourists, HSBC believes that measures such as expanding the visa exemption list, which remains under consideration, will be important in sustaining the currently level of momentum.
Furthermore, inflation appears to be an imminent concern. Headline inflation rose by 0.1% on-month, pushing the on-year print to 4.4%, in line with consensus of HSBC at 4.4%.
This marks the first time in more than 18 months that inflation has been approaching so close to the SBV’s 4.5% inflation ceiling. Similar to the previous episodes, the main drivers are higher oil prices and elevated food inflation.
According to economists, the former reminds them of how acutely sensitive the nation is to volatility occuring in the international commodity market, whereas the latter suggests that even an exporter like Vietnam cannot be insulated from high food costs.
Experts anticipate that inflation will breach the 4.5% ceiling in Q2, but this should only be briefly, before likely dropping below 4% in Q3.
Moreover, a rate hike in the face of still-subdued credit growth would be negative for nascent economic growth, with this not being a solution which can support the currency. As a result, they do not expect the SBV to move.
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