Econ
Vietnam's economy shifted to stable growth in 2018
The economy is expected to shift from "high growth, low inflation" in 2017 to "stable growth, higher inflation" this year, stated HSBC in its Asian Economic Quarterly report.
Growth was largely broad-based in 2017, with manufacturing contributing to growth at a 10-year high and services outperforming due to the country's growing middle class and liberalizing tourism sector.
HSBC expected services to remain strong in 2018, but manufacturing growth should decline slightly, given its expectations of a mildly slower growth in China and a less robust tech cycle. Vietnam is expected to grow 6.5% in 2018; however, for now, most high frequency indicators suggest that the risks to HSBC's outlook is on the upside.
For instance, manufacturing sentiment continues to improve, as the PMI reached a 10-month high in February, and electronics exports continue to rise on a yearly basis, even taking into account the recent Tet holiday distortions.
HSBC's outlook for a slowdown in trade from March onwards is shared by Vietnam's Ministry of Industry and Trade, which has said that exports this year could face a range of difficulties, including global economic uncertainties and protectionism. But ratification of the recently signed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) also poses positive benefits for future exports.
Meanwhile, according to the report, higher inflation for this year appears to be playing out, as food inflation is back after being in a deflationary trend for most of 2017. The State Bank of Vietnam (SBV) expects inflation of less than 4% in 2018, and HSBC forecasted it to register at exactly 4.0% this year, given the recent rise in food prices. Rising healthcare costs should remain the primary contributor to inflation, but higher food and oil prices are the key differentiating factors.
SBV is expected to remain cautious in 2018, avoiding unnecessary policy loosening for fear of runaway inflation and credit growth, while also being wary of tightening to avoid a slowdown in the economy, stated the report.
Consequently, it was expected the SBV to keep its policy rates on hold this year, but there is a potential risk of policy tightening, given upside inflationary risks. Based on the report's inflation trajectory, the recent lift in food inflation may result in headline CPI breaching the SBV's "below 4%" target from May onwards.
Additionally, 2018 is likely to be a big year for state owned enterprise (SOE) equitization, as the government aims to sell stakes in at least 181 SOEs and around 6.5 times more shares than it offered in 2017.
In 2017 Vietnam claimed a total gain of USD6 billion, mainly from a majority stake sale in Saigon Beer Alcohol Beverage (Sabeco), the country's largest brewing company. Some of the SOEs listed to be privatized this year also include big names in the country's beverage, oil, and power industries.
HSBC believed this bodes well to mitigate one of the country's primary risks to growth, namely the debt-to-GDP ratio breaching the 65% limit.
Vietnam exceeded most of the government's expectations in 2017, with full-year growth of 6.8%. The country set the target for GDP growth rate at the minimum of 6.7% in 2018, requested the Prime Minister Nguyen Xuan Phuc at a regular government meeting on April 2.
The economy also posted its strongest first-quarter growth in 10 years, expanding 7.38% annually in January-March, according to the General Statistics Office. Notably, agriculture saw a significant increase of more than 4%, doubling that of the same period last year.
Industry - construction are considered the driving force for economic growth with increasing rate of 11%. Additionally, the average consumer price index is kept under control at 2.82%.
HSBC's forecast on Vietnam key economic indicators.
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For instance, manufacturing sentiment continues to improve, as the PMI reached a 10-month high in February, and electronics exports continue to rise on a yearly basis, even taking into account the recent Tet holiday distortions.
HSBC's outlook for a slowdown in trade from March onwards is shared by Vietnam's Ministry of Industry and Trade, which has said that exports this year could face a range of difficulties, including global economic uncertainties and protectionism. But ratification of the recently signed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) also poses positive benefits for future exports.
Meanwhile, according to the report, higher inflation for this year appears to be playing out, as food inflation is back after being in a deflationary trend for most of 2017. The State Bank of Vietnam (SBV) expects inflation of less than 4% in 2018, and HSBC forecasted it to register at exactly 4.0% this year, given the recent rise in food prices. Rising healthcare costs should remain the primary contributor to inflation, but higher food and oil prices are the key differentiating factors.
SBV is expected to remain cautious in 2018, avoiding unnecessary policy loosening for fear of runaway inflation and credit growth, while also being wary of tightening to avoid a slowdown in the economy, stated the report.
Consequently, it was expected the SBV to keep its policy rates on hold this year, but there is a potential risk of policy tightening, given upside inflationary risks. Based on the report's inflation trajectory, the recent lift in food inflation may result in headline CPI breaching the SBV's "below 4%" target from May onwards.
Additionally, 2018 is likely to be a big year for state owned enterprise (SOE) equitization, as the government aims to sell stakes in at least 181 SOEs and around 6.5 times more shares than it offered in 2017.
In 2017 Vietnam claimed a total gain of USD6 billion, mainly from a majority stake sale in Saigon Beer Alcohol Beverage (Sabeco), the country's largest brewing company. Some of the SOEs listed to be privatized this year also include big names in the country's beverage, oil, and power industries.
HSBC believed this bodes well to mitigate one of the country's primary risks to growth, namely the debt-to-GDP ratio breaching the 65% limit.
Vietnam exceeded most of the government's expectations in 2017, with full-year growth of 6.8%. The country set the target for GDP growth rate at the minimum of 6.7% in 2018, requested the Prime Minister Nguyen Xuan Phuc at a regular government meeting on April 2.
The economy also posted its strongest first-quarter growth in 10 years, expanding 7.38% annually in January-March, according to the General Statistics Office. Notably, agriculture saw a significant increase of more than 4%, doubling that of the same period last year.
Industry - construction are considered the driving force for economic growth with increasing rate of 11%. Additionally, the average consumer price index is kept under control at 2.82%.