HSBC expects meaningful economic rebound in Viet Nam from Q4

In its report themed "The State Bank of Viet Nam: Third time's a charm" released on June 19, HSBC noted that the State Bank of Viet Nam (SBV) cut its policy rate by 50 base point, effective from 19 June, the third time in less than 3 months. 

The decision on June 16 is a clear reflection of the SBV's urgency to further support growth via the credit channel. This will continue to reduce financing costs for businesses and households, thus spurring business investment and supporting consumer sentiment.

HSBC expected that the SBV to deliver one more 50 base point rate cut in this easing cycle, sometime in the third quarter of 2023, to further support growth.

In addition to the urgency of supporting growth, the move on 16 June continues to reflect two of the SBV's considerations. For one, the SBV has maintained its optimistic tone about inflation prospects, again citing that "inflation is under control". 

Indeed, inflation has been consistently cooling down, recently moderating to below 3 percent year-on-year. This is further away from the SBV's 4.5 percent ceiling, thanks to supportive global energy prices and easing local food inflation. 

Given recent developments, the HSBC is cutting 2023 inflation forecast to 2.6 percent from the previous forecast of 4 percent. 

Encouragingly, Viet Nam continues to see a positive influx of tourists. The nation has welcomed close to one million tourists in the past two months, equivalent to 70 percent of 2019's levels. 

Two of its major sources of tourism merit attention. Korean tourists have recovered to 80 percent of the pre-pandemic level, but the ratio stands at only 35 percent for Chinese tourists. 

Fortunately, the supply side of bottlenecks continue to show signs of further easing. For one, Viet Nam has restored direct flights with China to around 40 percent of 2019's level, the second highest in ASEAN, just after Singapore (53 percent). 

Meanwhile, the long-anticipated relaxation on visa restrictions is under consideration by the National Assembly. With efforts to boost tourism, Viet Nam will likely see a punchier boost in the fourth quarter of this year.

According to HSBC, Viet Nam's services sector remains a bright spot and the nation's GDP growth is forecast to reach 5 percent in 2023./.