Sanguine economic outlook for Vietnam ahead in 2024: HSBC

According to details set out in the report, despite rough waters, the country ended 2023 relatively optimistic that this year can see the nation emerge strongly from mounting challenges.

Vietnamese GDP growth rose to 6.7% on-year in the fourth quarter of last year, thereby lifting its yearly growth rate to 5.1%.

Experts points out that this is in line with their forecast of 5.0%, which they have maintained for more than six months, despite a downward revision to 4.6% among consensus.

The manufacturing sector is one of Vietnam's key growth engines, with this industry seeing a notable improvement in the second half following a period of extreme sluggishness in the first half.

Despite moderating significantly from its historical average, at an even slower rate than during the pandemic, the manufacturing has shown positive signs of recovery. This is particularly evident in the electronics sector.

Indeed, the turn in the tech cycle has been quietly driving the recovery in Vietnamese exports. After enduring a double-digit fall in the first half, the nation has finally seen its exports grow close to double digits again in the fourth quarter, largely led by rising electronics shipments.

Aside from electronics, machinery shipments have also started to recover, with sustained double-digit growth in terms of Vietnamese booming agriculture exports.

In addition, the nation’s robust services continue to provide much-needed support to the economy. The sector expanded by over 7% on-year in the fourth quarter, mostly led by tourism-related sectors, including retail sales, transport, and accommodation.

As the northern hemisphere has entered winter, a significant number of tourists have flocked to the country’s variety of rich heritage sites, from the spectacular Ha Long Bay to the ancient town of Hoi An. The nation is now leading ASEAN with a recovery rate of 80% compared to 2019’s level.

Given these positive developments, Vietnam aims to lure 18 million tourists in 2024, up from 12.6 million in 2023, thereby paving the way for its full return to 2019’s level.

HSBC economists forecast that the country is ushering in a more hopeful Year of the Dragon due to sustained FDI inflows.

The country has been widely regarded as the main beneficiary of US-China trade tensions, a trend that continues. Both total and new FDI reached close to their respective historical highs in 2023, particularly with greenfield FDI jumping to a four-year-high of 5% of GDP.

Most notably, new manufacturing FDI soared to hit a new high of more than US$15billion, 80% of which is concentrated in the manufacturing space. This continues to put the nation in a leading position in ASEAN, just behind Malaysia.

With regards to the source of FDI, Japan and the Republic of Korea are both traditionally big investors in the Vietnamese market, but China has been expanding its FDI footprint quickly in the nation. In fact, 2023 marks the first time that mainland China recorded the largest share among investors.

Think tanks analyzed that despite a rosy picture, risks to trade and inflation warrant a closer look. As Vietnamese inflation remained under control in 2023, averaging 3.3%, it fell in line with expectations.

This leaves plenty of space below its inflation ceiling of 4.5%, with experts expecting inflation to remain benign in 2024, with a forecast of 3.4%, well below the new inflation target of 4% to 4.5%.

While maintaining an eye on upside risks to prices, they expect the SBV to keep its policy rate steady at 4.50% thorough the coming.

According to insiders, Vietnam is on track for recovery, likely returning to its trend growth of 6.0% this year. As FDI inflows continue to add production capacity, the Vietnamese manufacturing sector is experiencing the green shoots of a rebound, thereby bringing opportunities for its exports.

While it is key to watch how the minimum 15% corporate tax rate evolves, the impact should be manageable, they note.