Vietnam’s Economy to Grow 8.5% in 2022, Moody Economists Say

Despite a moderation in Vietnam’s July exports this year, Moody’s Analytics is positive on the country’s prospects as it remains a beneficiary of investment inflows redirected from policy uncertainties in China, as reported by Business Times from the analysis of Moody Analytics.

Vietnam is also the only Asia-Pacific (Apac) economy to experience a significant upward revision to GDP (gross domestic product) growth forecasts by Moody’s Analytics, with the research house now projecting its 2022 GDP growth to hit 8.5 per cent – the highest among its peers.

“A very slow reopening of (Vietnam’s) economy earlier in the year has now turned into a rapid improvement in industrial production and export trade, supported by continued inward foreign direct investment,” noted economists in a Monday (Aug 15) report.

“The uncertainty of policy in China is directing investment toward Vietnam and other Southeast Asian countries,” they added.

While the economists highlighted a deceleration of exports from all 3 export-related economies – Korea, Taiwan and Vietnam – based on July data, they believe demand could stabilise from the US as its labour market is “quite strong”, in their view.

“But the weakness from China and the potential for recession in the UK and Europe by late this year or early next year create downside risk for exports from the Apac region,” they cautioned.

Moody’s Analytics expects weakened trade patterns and persistent inflation to dampen the region’s economic growth in the second half of 2022, although a general pattern of economic and recovery and expansion will be maintained throughout the entire year.

According to its economists, the outlook for China and Hong Kong has declined the most significantly.

China’s real GDP growth for 2022 is now projected to reach only 3.4 per cent, down from the July forecast estimate of 4.3 per cent due to a lack of a significant impact from the housing market or consumer spending stimulus, and the quarterly GDP decline in Q2.

On the other hand, Hong Kong’s GDP for 2022 is expected to hit negative territory after quarterly GDP declines in Q1 and Q4 of 2021, followed by an even deeper 2 per cent quarterly decline in Q1 of 2022 as a result of international travel restrictions and the closed border with China.

“The continuation of Covid-19-related local restrictions through mid-August added to this uncertainty, although current restrictions are limited and located inland, away from major manufacturing and shipping centres,” said the economists of Hong Kong’s economy.

Recently, HSBC released the report named “Vietnam at a Glance”, in which HSBC gave out some comments and predictions about Vietnam’s inflation and economic growth.

After an impressive growth rate of 17% y-o-y in 1H, Vietnam’s exports started 2H on a weaker-than-expected note. Export growth moderated to 8.9% y-o-y in July, well-undershooting HSBC and market expectations (HSBC: 26.6%; Bbg: 22.2%). The main drag came from muted growth in electronics, in particular phone shipments.

Although the trend was not entirely surprising – given the impact of inflation on real incomes and a rotation from goods to services in the West– how quickly it reflected in Vietnam’s trade data was surprising. Indeed, Samsung’s 2Q results signalled weakening demand for consumer electronics, affecting smartphones, TVs and other products.

That said, textiles and footwear saw strong growth of 30% y-o-y, albeit in part due to favourable base effects. As Ho Chi Minh City (HCMC) and the surrounding areas suffered from a harsh lockdown in 3Q21, the base effects will likely last through 3Q22. However, the Vietnam Textile and Apparel Association warned of falling orders ahead, raising questions on how resilient these shipments could last.