Trade headwinds continue to mount

Vietnam’s exports started 4Q22 on a weaker note, growing 4.5% y-o-y in October

>> Economists warn of decline in exports

Solid domestic demand continues to be a boon for Vietnam. That said, October posted the first single-digit y-o-y growth since the border re-opening early this year, rising 9% y-o-y versus double digits seen previously. The softening in growth is also seen across all categories. Tourism, which has supported the economic recovery thus far, has also shown signs of stalling in terms of monthly arrivals. With 484k international tourists recorded in October, the number of international tourists is now just under half of the 5 million targeted by authorities for 2022. In particular, tourist inflows from Europe and South Korea continued to remain strong, encompassing 40% of arrivals.

On the external front, HSBC said trade headwinds continue to mount. Manufacturing PMI for October came in at 50.6, remaining in expansionary territory but reflecting a softening in the growth momentum across the board. Despite continued improvements in supply conditions, waning global demand has weighed on new order growth. Industrial production (IP) has also seen indications of a softening in growth momentum, with manufacturing IP rising 20.6% y-o-y.

Following the momentum in IP, Vietnam’s exports started 4Q22 on a weaker note, growing 4.5% y-o-y in October (HSBC: 6.1%, Bbg: 9.0%). In addition to the cooling demand for consumer electronics, textiles/footwear and machinery - which were strong export pillars in 3Q22, have also begun to show signs of stalling. Despite the year-end shopping season approaching, order demand for electronics and garments is weakening as Vietnam’s major export markets in the West face high inflation and high inventory levels. Weaker trade sentiment is also being acknowledged by Vietnamese authorities, with authorities in the Ministry of Industry and Trade (MoIT) commenting on external difficulties for the upcoming months.

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Meanwhile, import growth came in at 7.1% y-o-y in October (HSBC: 10.7%, Bbg: 9.0%), roughly around the 7.3% y-o-y seen in 3Q22. Energy continues to be a big part of the contribution to import growth, with energy prices persisting around current levels. On the other hand, imports of electronics continue to reflect a similar story seen in the export data. Import shipments for phones and spare parts recorded a third sequential y-o-y decline, decreasing by 3% y-o-y in October. Waning sentiment in the smartphone space further adds to the complicated outlook for one of Vietnam’s key exports, with Apple reportedly cutting production of its new mid-range iPhone model. Despite the continued moderation in export growth, the trade balance continued its trend from August and September, and recorded a surplus in October. That said, HSBC does not expect the trade surplus to be enough to lift the current account for this year, and expect a second consecutive year of a current account deficit.

Despite a less rosy external outlook for the remainder of the year and beyond, in the National Assembly session currently under way, the government has mentioned GDP growth in 2022 to be expected to reach 8%, surpassing the official target of 6.5%. Targets for next year also look strong compared to Asian peers, with the government targeting GDP growth of 6.5% and an inflation rate of 4.5% in 2023.