HCMCity (VNA)♛ - Vietnam’seconomy has passed its trough, staging a modest recovery with stronger-than-expectedgrowth of 5.3% in the third quarter, but upside risks to inflation haveresurfaced, prompting the upgrade of 2023 average inflation forecast to 3.4%, saidthe HSBC.

According to the “Vietnam At AGlance” report, themed “Light at the end of the tunnel”, released by the HSBC on October12, the lender said the biggest surprise is the rebound in Vietnam’smanufacturing sector. While it is still too early, in its view, to call amaterial recovery in the global trade cycle, Vietnam’s trade sector has had amuch-needed reprieve recently.

Although due in part to baseeffects, exports saw their first growth in more than six months, reducing theseverity of export falls from the double-digits in H1 to less than 2% y-o-y in Q3.While export weakness remains largely broad-based, decent growth in bothcomputer and agriculture shipments offsets some risks.

Thetrend is also reflected in Vietnam’s shipments to major trading partners. Whileexports to the US (30% share) and the EU (15% share) have yet to see aturnaround, they have halted further deterioration. Meanwhile, Vietnam’sexports to China (15% share) saw double-digit growth sequentially, largelythanks to its impressive growth in agriculture products.

♒ Notably,HSBC experts said despite near-term cyclical challenges to trade, Vietnam’slong-term FDI prospects appear intact. Its manufacturing sector accounts forthe bulk of FDI, providing hopes that it can climb up the value chain, pavingthe way for a robust rebound when the trade tide turns. New FDI continues topour into the manufacturing space, this year already exceeding the total ineach of the past three years.

Inaddition to manufacturing, Vietnam’s booming tourism sector remains the bedrockof its services, prompting the Government to raise its annual tourism target.

Withpositive signs in trade and tourism, HSBC maintained its 2023 growth forecastat 5%, expecting a robust recovery in Q4. Nonetheless, inflation riskswarrant a close watch.

While September inflation wascontained at 3.7%, below the State Bank of Vietnam (SBV)’s 4.5% ceiling,sequential growth raises concerns. For one, food prices had risen around 3%m-o-m for two straight months, pushing y-o-y inflation to overshoot 10%.

According to the HSBC, whileVietnam’s trade benefits from higher rice prices, international prices havepushed up the local prices of staple goods. Meanwhile, Vietnam is sensitive tothe global oil market’s recent volatility. Not only have transport costs ceasedto decline on a y-o-y basis for the first time in a year, but domestic gasprices have seen sizeable increases.

🍨 The bankalso expected the SBV to hold its policy rate steady at 4.5% until end-2024,barring any external shocks./.