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Although Vietnam has seen its weakest y-o-y quarterly growth on record, it still registered positive growth in 2Q, surprising the market to the upside.

HSBC Doubles Vietnam’s 2020 GDP Forecast
Today HSBC just released Vietnam’s 2020 and 2021 economy report “Singin’ in the rain”. Following are some of the report’s main points:
•         Despite Vietnam's 2Q GDP growth moderating to 0.4% y-o-y, its economic recovery is happening quicker than expected
•         HSBC raises Vietnam’s 2020 GDP growth forecast to 3.0% and no longer expect a 50bp cut by the SBV in 3Q
•         That said, we see reasons to remain cautious, as external headwinds persist and the local job market remains soft
Low growth, but still positive
Although Vietnam has seen its weakest y-o-y quarterly growth on record, it still registered positive growth in 2Q, surprising the market to the upside. True, its external-facing services sectors suffered a harder hit, as tourism fell close to 100% in 2Q. That said, the domestic sector has been rather resilient. Thanks to its high exposure to global tech supply chains, its electronics-related production has somewhat offset the weakness in traditional manufacturing sectors. Overall, Vietnam is showing signs of a quicker recovery than we previously anticipated, thanks to its success so far in containing the COVID-19 outbreak after re-opening its economy.
New forecasts
As a result, we raise our 2020 GDP growth forecast to 3.0% from 1.6% previously and trim our 2021 growth forecast to 8.5% from 9.1% previously. In addition, we raise our whole-year inflation forecast to 3.3% for 2020 from 2.7% previously, factoring in elevated food prices that we think may persist. Given a quicker-than-expected growth recovery and relatively subdued inflation this year, we now no longer expect a 50bp cut by the State Bank of Vietnam in 3Q. We expect its re-financing rate to stay at 4.5% throughout 2020.
Reasons to stay cautious
That said, we believe there are also reasons to remain cautious. Externally, the risk of a second wave of COVID-19 cases may dim Vietnam's exports outlook. Domestically, a deterioration in the labour market raises the question of how long its domestic demand recovery can be sustained.

DIEP NGUYEN