HSBC has lowered its GDP growth forecast for Vietnam from 6.5 percent to 6.2 percent due to inflationary pressures amid rising global energy prices.
“Vietnam is facing multiple challenges given elevated global energy prices. It will increase its energy bills, deteriorating its terms of trade position,” the bank said.
The country’s imports of crude oil and petroleum in March were double and four times the 2021 monthly averages, and the rising trend seems set to continue.
This is likely to shrink Vietnam’s external metrics, making it run a second consecutive current account deficit, and higher oil prices would increase the cost of living, dampening recovery in private consumption, the lender said.
It raised its inflation forecast for the year to 3.7 percent due to the high energy prices, saying this would increasingly call for the need for monetary normalization. The government targets inflation of not more than 4 percent.
The bank pointed out that the GDP growth of 5 percent in the first quarter was higher than its forecast of 4.7 percent, indicating the country is firmly back on the recovery track.
The manufacturing sector remained the key driver of growth in the first quarter, driven by a double-digit increase in electronics production.
Exports grew by 13 percent year-on-year thanks to increased demand for electronics products though strong figures were reported across sectors like textile, footwear, machinery, and wooden products.
With Vietnam reopening its borders on March 15, HSBC expects a “small rebound” in tourism this year.
Authorities are hoping to get 8-9 million foreign tourists this year, 40-50 percent of the 2019 numbers.
Economic growth of 6.2 percent will however make Vietnam one of the region’s top performers.