HSBC: Vietnam’s PMI goes up in September

The report showed that Vietnam’s PMI has expanded for 12 consecutive months since September 2013. In Q3 of 2014, the manufacturing sector punched above its weight, growing by 9.8% y-o-y and contributing 1.9% to the economy's 6.4% y-o-y growth rate.

With inventories reduced, output is expected to expand further in Q4, reflecting a GDP expansion of 6.0% y-o-y in the last quarter of this year.

September consumer price index (CPI) dropped further; with oil price subdued and demand pressure weak, said HSBC, which predicted CPI to end 2014 below 4%.

Inflationary pressures are benign as food supply is ample, domestic demand is sluggish, credit growth low, and oil prices weak. In recent years, domestic firms' trade deficits have narrowed while foreign enterprises' surpluses have picked up, providing stability for the currency and the economy.

In the medium term, HSBC believed that labour market, financial, infrastructure and supporting industry reforms are required for growth to be sustainable. Low linkages with foreign enterprises and persistent skilled labour shortages are currently limiting the benefits of FDI, especially regarding the acquisition of technology.

HSBC said the EU Vietnam Free Trade Agreement (FTA) will likely conclude by year end, if not in early 2015, resulting in stronger growth of manufacturing exports. The expiration of EU anti-dumping measures on Vietnam leather footwear, labour cost competitiveness with China and anticipation of the Trans Pacific Partnership have caused firms to shift production to Vietnam.

While manufacturing is going from strength to strength, Vietnam's service sector is flat-lining. Despite strong demographic transitions and rising income, the service sector is being dragged down by weak consumer sentiment and high levels of bad debt in the financial sector, HSBC reported.