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HSBC raises Vietnam’s 2020 GDP growth forecast to 3.0% from 1.6% previously and trim 2021 growth forecast to 8.5% from 9.1% previously.

HSBC: Vietnam’s Economy Resilients Amid Storms
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HSBC recently released a report titled “Singing in the Rain”, in which HSBC analyzes the real picture of the Vietnam’s economy and gives out some predictions. 
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, HSBC raises Vietnam’s 2020 GDP growth forecast to 3.0% from 1.6% previously and trim 2021 growth forecast to 8.5% from 9.1% previously. In addition, HSBC raises Vietnam’s whole-year inflation forecast to 3.3% for 2020 from 2.7% previously, factoring in elevated food prices that we think HSBC persists. 
Given a quicker-than-expected growth recovery and relatively subdued inflation this year, HSBC now no longer expects a 50bp cut by the State Bank of Vietnam in 3Q. HSBC expects its re-financing rate to stay at 4.5% throughout 2020.
Reasons to stay cautious
That said, HSBC believes 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.
Bottoming out
Vietnam’s economic resilience never ceases to surprise HSBC. Despite mounting challenges, GDP still registered positive growth of +0.4% y-o-y in 2Q, defying market expectations for a contraction in its economic activity (HSBC: -2.9%; Bloomberg: -0.9%; Prior(d): 3.7%). True, growth slowed to the lowest pace on record since quarterly GDP figures have been published. However, upside surprises in June, such as a surprisingly strong rebound in headline IP (+7.5% y-o-y) and a moderate fall in exports (-2%), prevented growth from falling into negative territory. 

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