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HSBC takes a closer look at Vietnam’s economy in 2Q. Unsurprisingly, the services sector was the biggest drag on 2Q growth. After growing 7% y-o-y on average in recent years, it fell 1.8% y-o-y.

Services – the Biggest Drag on Vietnam’s Second Quarter Economic Growth
Photo Credit: Reuters
Vietnam’s economic resilience never ceases to surprise us. 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. 
In this report, HSBC takes a closer look at Vietnam’s economy in 2Q. Unsurprisingly, the services sector was the biggest drag on 2Q growth. After growing 7% y-o-y on average in recent years, it fell 1.8% y-o-y, reflecting the compounded impact of border restrictions globally and the three-week nationwide lockdown in Vietnam. 
After the Vietnamese authorities announced restrictions on all foreigners entering the country (with a few exceptions) in late March, tourism was undoubtedly hit even harder, falling almost 100% y-o-y I 2Q. This is also evident in the GDP data: accommodation suffered a decline of close to 30% y-o-y while transport fell almost 5% y-o-y, both falling at an even faster pace than 1Q.
That said, not all services saw the same impact. Despite moderating from a fast expansion of almost 9% y-o-y in 2019, retail and wholesale still grew 3%. This may signal a stronger-thanexpected recovery in domestic demand: retail sales rebounded strongly in May and June from April’s 20% y-o-y decline. 
In addition, domestic-facing industries, such as finance, education and ‘information & communication’, were resilient.
Meanwhile, the manufacturing sector held up better than anticipated. Unlike services, it registered growth of 3.2% y-o-y in 2Q. This unexpected resilience is likely to be due to the upside surprise in June’s industrial production (IP) print. 
After two months of y-o-y contraction, IP recovered by 9.3%, with noticeable improvements in momentum of electronics-related production. In addition, the June PMI jumped to 51.1, the first time it was above the 50- watermark in five months. Key sub-indicators, such as output and new orders, rebounded strongly, signalling a continued improvement in the sector.

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