Vietnam is back as ASEAN’s growth star

The outperformance continued to be led by manufacturing, which grew 11.4% y-o-y. This was corroborated by healthy trade data, with exports rising 15.3% y-o-y in 3Q24. Encouragingly, the trade recovery that was initially centred around electronics is showing signs of broadening out, with textiles and footwear exports rising 16.7% y-o-y.

While Typhoon Yagi likely played a role in weighing on export growth in September, the impact is expected to be short-lived. Indeed, the manufacturing PMI fell sharply into the contractionary territory in September, indicating a deterioration from the previous month as businesses assessed damages to production.

However, manufacturers have been noted as being optimistic on the outlook, with underlying demand conditions still robust. Although there have been some signs of bumps in global trade, leading indicators such as manufacturing industrial production and imports continued to post double-digit y-o-y growth, supporting the view that the manufacturing sector will remain firm.

In contrast, growth in the agriculture, forestry, and fishery sectors moderated as a reflection of Typhoon Yagi’s larger impact on the sector. More than 345k hectares of crops were damaged, among other casualties. To support those most affected and vulnerable, the government urgently deployed relief measures, such as providing over VND350bn and 300 tonnes of rice in aid. Numerous banks have also implemented loan concessions for those affected until year-end.

Meanwhile, the recovery in domestic-oriented services continued to remain relatively muted, with the spillover from a rebounding external sector not as pronounced. Retail sales growth has shown little signs of accelerating, while monthly international tourist arrivals have stalled amidst rising regional competition to draw travellers.

That said, encouraging green shoots can be observed, with financial and real estate services showing an acceleration in 3Q24. The revised Land Law effective August will buttress improving sentiment seen in the real estate sector, while ongoing government measures such as tax cuts should also support the domestic retail sector with time.

On FDI, Vietnam continued to attract foreign inflows as fundamental prospects remained positive. Although growth in newly registered FDI moderated in 3Q24, sectors beyond manufacturing, such as real estate and energy, saw increases in investment. Looking ahead, manufacturing inflows are also likely to remain resilient. Continued efforts to deepen ties with international partners will also act as a tailwind for further investment inflows, with Vietnam recently upgrading relations with France to a comprehensive strategic partnership.

Finally on inflation. Headline inflation moderated further to 2.6% y-o-y in September, roughly in line with expectations of 2.7%. On a m-o-m basis, headline inflation rose 0.3%, led by food supply and prices impacted by Typhoon Yagi. While its lingering effects will require close monitoring, price pressures are evidently not as acute as before. In combination with lower global energy prices and a turn in the global monetary policy cycle, in HBSC’s view, inflation is expected to remain below the SBV’s 4.5% target ceiling.

“All in all, given the better-than-expected growth outturn in 3Q24, we raise our GDP forecast for 2024 to 7.0% (from 6.5%), expecting the recovery to strengthen and broaden out across sectors in the coming quarters. That said, with the recovery still uneven, we expect the SBV to maintain its accommodative stance and hold its policy rate at 4.5% until end-2025,” said HSBC.