Economic recovery signs on horizon in H2: analysts

Japanese fashion brand Uniqlo is set to open its 19th store in Vietnam in Hanoi’s Cau Giay District on July 21, weeks after launching its first outlet in the southern province of Binh Duong.

The Hanoi store is set to be its fourth launched in Vietnam this year, indicating that the retail industry might see a boom in demand in upcoming months.

Services, one of the three main pillars of the economy alongside industry-construction and agriculture-forestry-seafood, contributed nearly 79% to GDP growth in the first six months and accounted for over 43% of the economic structure.

"Services continued to provide a strong bedrock to offset some trade weakness," said HSBC economist Yun Liu in a report on Vietnam earlier this month, adding that tourism recovery remains firmly on track.

In the last six months Vietnam welcomed a total of 5.6 million tourists, seeing its number of visitors return to 80% of 2019 monthly levels.

Chinese visitors, a major source of tourist arrivals, quickly approached 50% of 2019 levels thanks to the resumption of direct flights post-lockdown.

"[Vietnam’s tourism] is likely to easily exceed the annual tourist target of 8 million," Liu said.

At a recent meeting, Nguyen Thi Hoa, director of Ho Chi Minh City’s Department of Tourism, said that travel demand is showing positive signs of recovery in both domestic and inbound markets.

"Tourists have been booking ahead for services," she said.

Morgan Ulaganathan, head of asset services and hospitality advisory for property consultancy Colliers Vietnam, said that demand for short-term accommodation will increase with the number of tourists, businesspeople and experts.

He expected that recent relaxations in Vietnam’s visa policy will also likely draw in more foreigners.

Stock brokerage VNDirect expects GDP growth to reach 7.1% in the last six months and 5.5% for the whole year, thanks to booming tourism demand.

Eurocham Vietnam has recently proposed that the no-visa policy, currently applied to seven countries in the E.U., be extended to 27 countries.

Eurocham Vietnam chairman Gabor Fluit said that this will bring about a large number of tourists from the bloc with a population of over 500 million.

Lifting the hinderances for international tourists, who have demand for high-end services, will open good opportunities for Vietnam’s tourism after difficulties in recent years, he added.

Supporting growth

The government has been making moves to support economic recovery, such as lowering value-added tax (VAT) from 10% to 8%, and untangling legal knots for southern property projects.

The State Bank of Vietnam (SBV) has also made four policy rate adjustments to lower loan interests and boost credit growth.

"The recovery in the second half of the year will be boosted mainly by Vietnam’s fiscal policy and lower loan interests," VNDirect said.

Public spending is also expected to be a recovery driver. The government has estimated that VND550 trillion will be disbursed in the last seven months of the year.

For every 1% of public investment funds disbursed, GDP will increase by 0.06%, according to official estimates.

HSBC anticipates that the central bank will lower its policy rate by another 50 basis point in this quarter.

However, the economy will still face troubles in manufacturing and exports in the remaining months.

Exports declined double-digit year-on-year in the first and second quarters, and a rise in agriculture produce shipment was not enough to compensate for the plunge in other sectors such as electronics, footwear, garment, machines and wood, all of which posted a double-digit drop.

As U.S. inventories seemed to have peaked in the first quarter, demand for imports will rise and this will pose opportunities for Vietnamese exporters in the last quarter, according to a VNDirect report.

"The storm is passing away for the economy, and beams of sunlight are showing," the report said.