Economy to rebound in Q4: HSBC

The latest policy rate cut from the State Bank of Vietnam (SBV) reflects its urgency to further support growth via the credit channel and this will continue to reduce financing costs for businesses and households, the lender said.

It has been a tough year so far for Vietnam’s economy. After seeing sharply slowing growth of only 3.3% year-on-year in the first quarter, the country continues to brace for strong headwinds.

Exports so far have fallen by over 10% y-o-y, with broad-based weakness. All major shipments, including consumer electronics, textiles/footwear, machinery and wooden furniture, all suffered sharp double-digit declines, with no meaningful reprieves.

There is a clear divergence between big ticket items, including automotive sales and tourism-related services. On a 3-month-moving average, auto sales plunged over 40% y-o-y, almost on par with that during the lockdown period in 2021.

But the country continues to see a positive influx of tourists. Vietnam has welcomed close to 1 million tourists in the past two months, equivalent to 70% of 2019 levels.

The central bank’s rate cut, therefore, showed that it has maintained its optimistic tone about inflation prospects, again citing that inflation is under control at below 3%.

The Vietnamese dong has remained relatively stable, thanks to its improving current account dynamics. While Vietnam has been suffering from trade headwinds, its imports have plunged much more than exports, given its import-intensive nature in the manufacturing sector.

HSBC therefore has cut its GDP growth forecast from 5.2% to 5% for Vietnam this year, taking into account a protracted and a deeper-than-expected trade downturn.

"We now expect a meaningful economic rebound from the last quarter, warranting further monetary support," it said.

HSBC expects the SBV to make another 50 basis-point rate cut in the third quarter.