Vietnam’s economy is expected to remain stable in the short term, according to a recent report of HSBC.
Inflation is under control, the food supply is ample, domestic demand is sluggish, credit growth low, and oil prices weak, the report noted.
In recent years, trade deficits at domestic firms have narrowed while surpluses at foreign enterprises' have picked up, providing stability for the currency and the economy, the report noted.
Headline inflation slowed to 3.6 percent year-on-year in September despite higher education costs. HSBC's analysts expect Vietnam's Consumer Price Index to increase 3.7 percent year-on-year this year.
Exports grew at an estimated 14.1 percent since early this year --a rather rather impressive clip considering lacklustre demand across the globe.
The growth of outbound goods has helped offset slowing investment and rising labour demands.
Even if domestic firms, especially state-owned-enterprises (SOEs), do not receive a large credit injection, Vietnam can maintain a small trade surplus thanks to its labour competitiveness, HSBC estimates. HSBC does not expect nominal credit growth to exceed 10 percent this year.
A study of Vietnam's trade ownership structure showed that the country's domestic firms are losing competitiveness, a condition that must be addressed in the medium-term.
Foreign firms that already exist in the country present opportunities for domestic firms to learn new technology, tap into the global supply chain and create jobs and wealth for its unskilled rural population. All these benefits, however, require proactive government policy to be maximized. To this end, policy makers have taken the first step of reducing wasteful investment.
In the medium-term, reforms to the labour market, financial system, national infrastructure and supporting industries are required to ensure sustainable growth. Low linkages with foreign enterprises and a persistent shortage of skilled labour currently limit the benefits of FDI, especially regarding the acquisition of technology.
In the 3rd quarter, the manufacturing sector grew 9.8 percent year-on-year. With inventories reduced, HSBC expects output to expand further in the 4th quarter, and a quarterly GDP growth of 6.0 percent.