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

(Dan Tri Newspaper) - HSBC believes that Vietnam has started the new year with strong signs of economic recovery.

The outlook for Vietnam is projected to improve.

In its latest update, HSBC Bank noted that after a challenging Year of the Rabbit, Vietnam's outlook is projected to improve in the Year of the Dragon. Domestic consumption, while facing increasing pressure, is expected to improve. Initial signs include a recovery in some consumer sector stocks. The electronics sector has recently seen some positive signs, suggesting the darkest period for the trade sector is over. However, recovery will vary across sectors, as it will not be entirely uniform. Industries that provide significant employment, such as textiles and footwear, have not yet fully emerged from their difficulties. Furthermore, a full recovery in the tourism sector is crucial for the labor market, supporting workers in the service industry.

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

Thanks to favorable policies extending visa-free stays for foreign tourists from certain countries and issuing e-visas to citizens of all countries from mid-August, Vietnam welcomed approximately 12.6 million foreign visitors (70% of the 2019 level), significantly exceeding the government's initial target of 8 million. This favorable outlook even prompted the Vietnam National Administration of Tourism to set an ambitious target for this year of 17-18 million foreign visitors, nearly reaching the record high of 2019, aiming for total revenue of 840 trillion VND (8% of GDP), surpassing the 2019 figure.

The trend of non-essential consumption is on the rise.

Despite short-term cyclical challenges, HSBC believes structural trends remain promising for Vietnam. With impressive growth over the past 20 years, the overall increase in wealth has fueled stronger consumer spending, stimulating a shift toward non-essential goods and services. Looking at non-essential spending trends, the bank observes a steady increase in car purchases. A clear indicator of this increased consumer purchasing power is the divergence in SUV versus sedan purchases, with SUVs generally being more expensive than sedans. However, this is not a recent phenomenon. In fact, average income has risen faster than spending in recent years, further supporting increased consumption. The rise of the emerging middle class has attracted the attention of international businesses seeking profitable opportunities based on the increased spending power of Vietnamese consumers.

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

The surge in FDI from Japan into the retail and financial services sectors is a notable example. While people's wealth is increasing, nearly 80% of the population remains unbanked or has inadequate access to banking services, according to the Asian Development Bank (ADB). The World Bank's latest Financial Inclusion data also supports this, showing that Vietnam possesses significant potential for developing formal lending channels, which are still in their early stages of development. Despite this promising potential, HSBC also notes the associated risks. A key concern is the 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. Between 2013 and 2022, household debt surged, from 28% of GDP to 50% of GDP. This unsustainable increase in consumer leverage could create significant risks for Vietnam's banking sector, as well as impact future consumer spending due to further income cuts to repay debt. Fortunately, the government implemented a series of support measures for both businesses and households in 2023, such as extending tax breaks, cutting interest rates, and extending repayment periods. While financial stresses are likely to persist and will need to be monitored in the short term, there are some signs that the worst is over. According to HSBC, the cautious but improving sentiment in the real estate sector will boost overall consumer sentiment. Meanwhile, the improving outlook for the labor market will support wage growth, thereby improving household debt repayment capacity.

Dantri.com.vn

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