HSBC expert: There will be a shift in growth dynamics

GDP growth in 2025 is forecast to reach 6.5%, with a likely slight shift in growth contribution, with exports falling and domestic consumption rising slightly, according to Frederic Neumann, Chief Economist, Asia-Pacific Economic Research, HSBC Bank, in an interview with Banking Times.

How do you view the global economic developments and prospects, especially in the US, Europe and China markets - Vietnam's major partners?

Indeed, there have been many events over the past year, from geopolitical tensions, conflicts in the Middle East, the continued decline of the Chinese real estate market, the market at one point suddenly talked about the risk of a recession in the United States... However, if you look closely at the global economy, things are actually progressing surprisingly well. Besides, despite all the talk about the risk of de-globalization and tariffs, increasing trade protectionism... the reality is that global trade is still at a record high, we currently do not have enough containers globally to transport all the goods that need to be transported... So it can be said that, in many ways, the global economy has proven to be much more resilient than people expected, of course that does not mean there are no risks. Last year, global GDP grew by about 2.7%. This is also the growth rate we forecast for this year and also forecast growth at a similar rate (2.6%) for next year.

In the US economy, even in July and August, there were concerns about a hard landing, that is, an impending recession. But when you look at various measures in the US, especially the fact that consumer spending has remained fairly steady - it accounts for 70% of economic activity in the US and is really the driver of the US economy as well as trade and the global economy at the moment - it suggests that the US economy is not really facing a hard landing, although there may be a slowdown. We forecast US GDP growth of 2.7% this year.

In Europe, the picture is actually a little weaker than in the US, and with manufacturing already in contraction (the manufacturing PMI has contracted quite sharply, signaling a risk of a contraction in the services index), weak retail sales growth (which, adjusted for inflation, are actually falling)… the weakness could be more widespread. We forecast Eurozone GDP growth of 0.7% this year. In China, despite some large stimulus packages being rolled out, there are still some challenges, particularly structural challenges and difficulties in the property market. We forecast China GDP growth of 4.9% this year.

Recently, HSBC is one of the organizations that has strongly increased the forecast for Vietnam's GDP growth in 2024 to 7.0%. What is the basis for this forecast increase, sir?

The increase in Vietnam’s GDP growth forecast for 2024 to 7.0% underscores the strong recovery of the economy in the third quarter. The GDP growth of 7.4% in the third quarter far exceeded our forecast of 6.2% and was mainly due to positive growth in industrial production and exports. In addition, indicators of recovery in the service sector, especially finance and real estate, are also positive signs. The government has quickly implemented support measures for areas affected by natural disasters, contributing to strengthening confidence in economic stability.

In addition, inflation has been falling, with September inflation rising only 2.6% year-on-year, allowing the SBV to maintain its current monetary policy to support growth. These factors have created a solid foundation for stronger growth in 2024, helping Vietnam affirm its position as ASEAN’s growth star.

What is your forecast for the Fed's decision at its policy meeting in November and what impact will this have on Vietnam?

I think the market has a fairly high probability that the Fed will cut rates by another 50 basis points before the end of the year, probably in two 25 basis point cuts. My base case is a quarter point cut in November, but it is also possible that the Fed will not want to make moves so close to the election (i.e. no cut at the November meeting). If the Fed does not cut in November and then cuts by 50 basis points in December, that would be a tactical adjustment. The bigger question for us is how far will the Fed cut in 2025? There is no definitive answer, but the market’s expectation two months ago of a strong Fed easing (12 cuts in the next 18 months) is no longer correct. We'll probably see the Fed cut a little more and then settle into a more steady state next year.

If the Fed does not cut interest rates as much as expected, it shows that the US economy is quite strong and that means exports will not be negatively affected. The impact on Vietnam will therefore come more from the domestic side. Because if the Fed does not cut interest rates much, the trend of the USD being stronger against other currencies, including the VND, will continue. That further narrows the room for the SBV to cut interest rates further. Besides, inflationary pressure still exists, so there is no reason to cut interest rates strongly. In such a scenario, we do not think the SBV will cut interest rates and the policy interest rate of 4.5% will be maintained until the end of 2025.

According to you, what notable shifts will there be in the coming time?

In our forecast of 7% growth for the year, we actually expect growth to slow down a bit in the fourth quarter. Accordingly, we expect growth to be flat compared to the third quarter, reaching 7.4% year-on-year, due to one of the factors being domestic demand, such as looking at retail sales, which, although recovering, are still lower than the pre-pandemic trend.

Based on the positive growth in 2024, we forecast GDP growth in 2025 at 6.5%. But within that, we are likely to see a slight shift in growth, with exports falling slightly and domestic demand rising slightly. We believe that the headwinds for domestic consumption will ease. For example, in the real estate market, we feel that the market has bottomed out, having passed the most difficult adjustment period when there are signs that foreign investors are looking for opportunities in the real estate market. The market may not grow strongly yet, but at least when this market stabilizes, it will bring a little boost to domestic consumption. In addition, promoting the implementation of infrastructure projects is also a driving force for growth.

Thank you!

Source: https://thoibaonganhang.vn/chuyen-gia-hsbc-se-co-su-chuyen-dich-trong-dong-luc-tang-truong-157016.html