It is believed that the biggest risk to Vietnam's economic growth is increasing trade difficulties. Vietnam is not immune to the effects of the slowdown in global trade.
Vietnam's GDP growth in 2023 will reach about 5.8%
According to a new report released by HSBC, the year 2022 is considered as a year of explosive recovery, making Vietnam one of the most outstanding economies in Asia. However, the growth outlook is now clouded by mounting trade obstacles.
After growing more than 17% year-on-year in the first three quarters of 2022, export growth decelerated rapidly in October, while November saw a significant year-on-year decline in the past two years. The main reason comes from the electronics sector, which accounts for about 35% of Vietnam's total exports.
However, recent data shows a decline in exports across multiple sectors, including textiles/leather, wood products and machinery. Specifically, the economic downturn in the US makes the situation even more difficult because the US is the largest export market of Vietnam.
With the advantages of reopening economy, HSBC raised its growth forecast for 2022 to 8.1%. However, the challenges are likely to weigh more heavily in 2023, especially after the effects of reopening fade and the effects of high inflation begin to take their toll, albeit with a delay. Therefore, HSBC forecasts growth will slow to 5.8%.
Analysts also pointed out that Vietnam has started to see stronger inflation pressure. The latest forecast has exceeded the ceiling of 4% of the State Bank of Vietnam (SBV). Not only did core inflation increase, Vietnam also witnessed a domestic energy shortage, causing inflation to rise.
Although HSBC recently slightly lowered its inflation forecast for 2022 to 3.2%, the bank has raised its forecast for 2023 to 4.0%. This means that the SBV is likely to continue the tightening cycle.
Vietnam is more affected when the US economy declines
It is believed that the biggest risk to Vietnam's growth is the increasing difficulties in trade. Vietnam is not immune to the effects of the significant slowdown in global trade.
Since the US-China trade tensions, Vietnam has been one of the biggest beneficiaries in terms of trade and foreign direct investment (FDI). According to HSBC, that is why Vietnam is more affected when the US economy declines.
Other risks come from upward pressure on energy prices. Although it has fallen from its peak in June, gasoline prices remain high.
To reduce the risk of storing fuel imported from abroad, which is potentially volatile, the Government has directed domestic refineries and state-owned enterprises to plan to increase energy imports in the first six months of 2023. This move is likely to squeeze Vietnam's current account advantage due to higher import costs.