Geo-political tensions with China will likely inflict only limited short-term damage to Vietnam’s economy and sectors like tourism are expected to bear most of the brunt, according to a recent report of HSBC.
“Tourist arrivals from China will likely slow, but we expect them to normalize in the coming months,” said the report. Year-to-date, tourist arrivals grew 26.1 percent. HSBC expect this pace to decelerate, impacting the retail sector.
Core investors in Vietnam--Japan, Korea, the United States and Taiwan--will stay put, the report predicted.
The long-term impact will likely hinge on how Vietnam organizes it supply chain. Vietnam still relies on imported inputs for its major export items, including textiles, footwear and electronics.
Vietnam is negotiating its accession to the US-led Trans Pacific Partnership (TPP) and is expected to be the biggest winner in the 12-nation deal.
However, one of the key sticking points for Vietnam is the Rule of Origin, which requires inputs to be entirely sourced from TPP countries. TPP considerations and recent tensions may accelerate the pace of reforms, the report found.
Vietnam’s economic growth accelerated 5.5 percent year-on-year in the second quarter of this year, compared to 4.8 percent in the first quarter on higher manufacturing and resilient service growth.