Thanks to the impact of the State Bank's interest rate cut and the rise in tourism, HSBC forecasts that Vietnam's economy will recover significantly from the last quarter of the year.
HSBC has just updated its forecast for Vietnam's GDP growth in the quarters and for the whole year of 2023, saying that the economy will "recover significantly" in the fourth quarter, at 7.3%, slightly up from the previous forecast of 7.2%.
GDP growth in the first quarter was 3.32%, according to official figures from the General Statistics Office. The bank said the recovery will accelerate gradually over the quarters, with forecasts for the second and third quarters at 3.8% and 5.1%, respectively. The reason for the economic outlook to improve is the State Bank's move to lower operating interest rates and an active service sector, according to the bank.
In less than 3 months, the State Bank has reduced the operating interest rate 3 times, each time by 50 basis points. The most recent one, effective from June 19, reduced the refinancing interest rate to 4.5%. This decision helps support growth through the credit channel.
"This is a further move to reduce the cost of financing for businesses and households, thereby encouraging the business environment and supporting consumer sentiment," HSBC's report commented.
In addition, this move also reflects two points. One is that the State Bank still maintains the attitude of "inflation is still under control". In fact, inflation has continuously eased, recently falling below 3% compared to the same period last year. The second is the ability to stabilize the currency. Despite the recent strengthening of the USD, the VND has remained relatively stable thanks to the improved current account situation.
Serving food at a restaurant in Ho Chi Minh City in June 2023. Photo: Thanh Tung
The second bright spot is the service sector, which has partly compensated for the weakness caused by difficulties in foreign trade. Notably, foreign visitors have shown a positive trend. Vietnam has welcomed nearly one million tourists in the past two months, equivalent to 70% of the level of 2019.
The industry’s bottlenecks continue to unravel. Vietnam has restored direct flights to China, reaching about 40% of 2019 levels. The National Assembly is also considering easing visa restrictions. “With efforts to boost tourism , Vietnam is likely to see a stronger boost in the fourth quarter,” HSBC said.
For the full year 2023, the bank said GDP could reach 5%, a slight adjustment from the previous forecast of 5.2% due to the impact of the prolonged trade slowdown. There is a possibility that the State Bank will conduct another 50 basis point interest rate cut - possibly this quarter - to further support growth. This will not happen if the economy bounces back sooner than expected, according to HSBC experts.
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