Manufacturing IP is back to healthy levels of growth in recent months. — Photo from HSBC Vietnam

HCM CITY —  Việt Nam recorded stronger-than-expected growth in the third quarter of 2024, with GDP rising 7.4 per cent year-on-year, according to a report released by HSBC on Friday.

Amid concerns that the impact of Typhoon Yagi, the strongest storm Việt Nam faced in 70 years, would weigh on growth, the report says the economy was relatively robust.

The northern provinces were hit particularly hard in early September with damages estimated at over US$3 billion. However, the impact has been primarily concentrated in the agriculture, forestry and fishery sector. Manufacturing and trade remained resilient and continued to lead the recovery, while the domestic sector remained relatively muted despite seeing incremental improvements.

On the back of base effects and more favourable price developments vis-à-vis commodity prices and currency moves, inflation has shown notable moderation in recent months, the report stated. While risks such as from supply-side disruptions from the typhoon and geopolitical conflicts remain present, inflation well below from the State Bank of Vietnam’s (SBV) 4.5 per cent target ceiling will allow the SBV to maintain an accommodative stance and focus on supporting growth, which remains uneven.

Given the upside surprise in Q3, the bank raises its 2024 GDP growth forecast to 7.0 per cent, from 6.5 per cent, while keeping its 2025 GDP growth forecast unchanged at 6.5 per cent.

Strong upside surprise

From a challenging 2023 and the early months of 2024, Việt Nam is clearly back as ASEAN’s growth star. Notably, Q3 came in at 7.4 per cent year-on-year, beating HSBC and consensus expectations (HSBC: 6.2 per cent, BBG: 6.1 per cent). The outperformance continued to be led by manufacturing, which grew 11.4 per cent y-o-y. This was corroborated by healthy trade data, with exports rising 15.3 per cent y-o-y in Q3.

Encouragingly, the trade recovery that was initially centred around electronics is showing signs of broadening out, with textiles and footwear exports rising 16.7 per cent y-o-y, the report noted.

While Typhoon Yagi likely played a role in weighing on export growth in September, the impact is expected to be short-lived. Indeed, the manufacturing PMI fell sharply into the contractionary territory in September, indicating a deterioration from the previous month as businesses assessed damages to production.

However, manufacturers have been noted as being optimistic on the outlook, with underlying demand conditions still robust. Although there have been some signs of bumps in global trade, leading indicators such as manufacturing industrial production and imports continued to post double-digit year-on-year growth, supporting the view that the manufacturing sector will remain firm.

Tourist arrivals have recovered, although Chinese arrivals still lag.

In contrast, growth in the agriculture, forestry, and fishery sector moderated as a reflection of Typhoon Yagi’s larger impact on the sector. More than 345k hectares of crops were damaged among other casualties (Barron’s, 28 September 2024). To support those most affected and vulnerable, the government urgently deployed relief measures, such as providing over VNĐ350 billion and 300 tonnes of rice in aid. Numerous banks have also implemented loan concessions for those affected until year-end.

Meanwhile, the recovery in domestic-oriented services continued to remain relatively muted with the spillover from a rebounding external sector not as pronounced. Retail sales growth has shown little signs of accelerating, while monthly international tourist arrivals have stalled amidst rising regional competition to draw travellers. That said, encouraging green shoots can be observed, with financial and real estate services showing an acceleration in Q3 2024. The revised Land Law effective August will buttress improving sentiment seen in the real estate sector, while ongoing government measures such as tax cuts should also support the domestic retail sector with time.

On FDI, Việt Nam continued to attract foreign inflows as fundamental prospects remain positive.

Although growth in newly registered FDI moderated in the third quarter, sectors beyond manufacturing such as real estate and energy saw increases in investment. Looking ahead, manufacturing inflows are also likely to remain resilient, with General Secretary Tô Lâm’s recent visit to the US yielding investment intentions from various firms such as Meta. Continued efforts to deepen ties with international partners will also act as a tailwind for further investment inflows, with Vietnam recently upgrading relations with France to a comprehensive strategic partnership.

Finally, on inflation. Headline inflation moderated further to 2.6 per cent y-o-y in September, roughly in line with expectations of 2.7 per cent. On a month-on-month basis, headline inflation rose 0.3 per cent, led by food supply and prices impacted by Typhoon Yagi. While its lingering effects will require close monitoring, price pressures are evidently not as acute as before. In combination with lower global energy prices and a turn in the global monetary policy cycle, inflation is expected to remain below the SBV’s 4.5 per cent target ceiling. — VNS