Vietnam joined the 8% club but needs caution

Vietnam delivered firm growth of 5.9% year over year in 4Q, bringing its yearly GDP growth to a 25-year high of 8.02%.

>> Vietnam rides through economic difficulties

An impressive 2022

No doubt, Vietnam ended 2022 on a strong footing. The country delivered firm growth of 5.9% year over year in 4Q, bringing its yearly GDP growth to a 25-year high of 8.02%, in line with HSBC’s expectation. This will again make Vietnam one of Asia’s top performers. In HSBC’s view, Vietnam has clearly benefited from a full reopening since mid-March. Consumer-oriented and tourism-related services, including retail sales, food and beverage, travel, and accommodation, have been booming significantly and lifting growth.

The agroforestry-fishery industry saw growth of 3.36%, adding 5.11% to the overall added value of the economy. The industry-construction sector expanded by 7.78%, contributing 38.24% to the economy, while the service sector expanded by 9.99%, contributing 56.55%. Concerning the economic structure, the agro-forestry-fishery sector contributed 11.88% of the total in 2022, followed by industry and construction (38.26% of the total), services (41.33%), and product taxes (8.53% of the total, excluding product subsidies).

Final consumption contributed 49.32% of the whole growth, with an annual growth rate of 7.18%. Trade in exports, imports, and services added 28.09%, while asset accumulation increased by 5.75% and contributed 22.59%.

The predicted GDP per capita was 95.6 million VND (4,110 USD), up 393 USD from 2021, while the estimated labor productivity was 188.1 million VND (8,083 USD) per worker, up 622 USD annually.

A challenging 2023

However, despite a rosy 2022, 2023 will nonetheless be a challenging year. The biggest downside risk to Vietnam’s GDP growth is intensifying trade headwinds. Vietnam’s external engine has moderated sharply in the past few months, and the outlook is uncertain for the new year as the growth of its major trading partners is set to slow.

>> Economy quite resilient to external shock

Meanwhile, high inflation is worth a close watch as Vietnam continues to see stronger inflation pressures, particularly on core prices. HSBC expects Vietnam’s GDP growth to slow to 5.8% and average inflation to accelerate to 4.0% in 2023.

Bright spots remain

That said, there are sources of optimism. For one, there is plenty of room for Vietnam’s tourism sector to continue to recover. In particular, China’s reopening on January 8, 2023, will likely provide a much-needed boost.

In addition, Vietnam remains an attractive FDI destination, providing some cushion to offset immediate trade headwinds. Not only have traditional tech giants like Samsung and LG continued their expansion plans in the country, but new players such as Apple have also been adding production lines in their supply chain diversions to Vietnam.