HSBC: Vietnam's economy will improve in the year of the Dragon

(Dan Tri) - HSBC commented that Vietnam started the new year with signs of steady economic recovery.

Vietnam's context is forecast to improve

In its latest update, HSBC Bank said that after a challenging year in the year of the Cat, Vietnam’s outlook is expected to improve in the year of the Dragon. Domestic consumption, although under increased pressure, is expected to improve. The initial sign is that some consumer stocks are recovering. The electronics sector has recently seen some positive signs, indicating that the darkest period of the commercial sector has passed. However, each sector is different because the recovery is not entirely uniform. Industries that are large sources of employment, such as textiles and footwear, have not completely escaped the difficult period. In addition, a full recovery in the tourism sector is also very important for the labor market, supporting workers in the service sector.

The job market improved after global trade recovered (Photo: Dan Tri).

Thanks to favorable policies extending visa-free stays for foreign visitors from a number of countries and issuing electronic visas (e-visas) to citizens of all countries since mid-August, Vietnam welcomed about 12.6 million foreign visitors (70% of 2019 levels), far exceeding the State's initial target of 8 million. The favorable outlook even prompted the Vietnam National Administration of Tourism to set an ambitious target for this year of 17-18 million foreign visitors, close to the record high of 2019, aiming for total revenue of VND840 trillion (8% of GDP), exceeding the 2019 level.

Non-essential consumption trends are increasing.

Despite the short-term cyclical challenges, HSBC believes that structural trends remain promising for Vietnam. With impressive growth over the past 20 years, the general increase in wealth has fueled a stronger consumer trend, stimulating a shift towards discretionary goods and services. Looking at discretionary spending trends, the bank sees a gradual increase in car purchases. A clear sign of rising consumer purchasing power is the different purchasing trends between SUVs and sedans, with SUVs generally being more expensive than sedans. However, this is not a recent phenomenon. In fact, average incomes have been growing faster than spending in recent years, helping to fuel increased consumption. The rise of the emerging middle class has attracted the attention of international businesses looking to capitalize on the increased spending needs of Vietnamese people.

Vietnamese people are buying more and more cars (Photo: IT).

The surge in Japanese FDI into the retail and financial services sectors is a notable example. Despite rising wealth, nearly 80% of the population remains unbanked or underbanked, according to the Asian Development Bank (ADB). The World Bank’s latest Financial Inclusion data also confirms this, showing that Vietnam has significant potential to expand formal lending channels, which are still in their early stages of development. Despite the bright potential, HSBC also notes the risks involved. The main issue to watch out for is rising household debt. While there is no data to measure this in Vietnam, the bank has estimated it through analysis of the financial statements of four major banks, which may include loans to small businesses. Household debt has risen sharply from 28% of GDP to 50% of GDP between 2013 and 2022. The unsustainable rise in consumer leverage could pose significant risks to Vietnam’s banking sector, as well as impact future consumer spending as it requires further cuts in income to service debt. Fortunately, the government has rolled out a series of support measures for both businesses and households in 2023, such as tax breaks, interest rate cuts and debt repayment extensions. While financial strains are likely to persist and will need to be monitored in the short term, there are some signs that the worst is over. HSBC believes that cautious but improving sentiment towards the real estate sector will boost overall consumer sentiment. Meanwhile, improving labour market prospects will support wage growth, thereby improving household debt servicing capacity.

Dantri.com.vn

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