Vietnam: Economy records best result in series in Q2
GDP growth gained momentum to 7.7% year on year in the second quarter, from 5.0% in the first. Q2’s reading beat both market expectations and our projection for 4.9% yoy growth.
Looking at subsectors, growth in the industrial sector rose to 8.9% in Q2 (Q1: +6.4% yoy), with manufacturing continuing to drive overall growth in economic activity. Industrial activity in Q2 benefited from China’s lockdowns in April–May, as Vietnam stepped in as an alternative production site. Moreover, growth in the services sector nearly doubled to 8.6% yoy in Q2, from Q1’s 4.6%. Easing Covid-19 restrictions—particularly the lifting of a ban on international arrivals in March—boosted the reading. Lastly, agricultural production growth registered the mildest improvement—3.0% year on year (Q1: +2.4% yoy).
Looking ahead, economic growth should accelerate further in Q3, keeping annual growth comfortably above the pre-pandemic average of 6.3%. A recovery in domestic demand, the return of international tourists and a rebound in investment will drive growth. That said, potential slowdowns among major trading partners and a resurgence of Covid-19 cases could dampen growth. In addition, rising inflation may soon prompt the State Bank of Vietnam (SBV) to shift its policy stance from accommodative to tightening, further restricting growth prospects.
Regarding Vietnam’s performance this year, Suan Teck Kin and Peter Chia, economists at United Overseas Bank, commented:
“Based on the surprisingly strong data in the 2Q22 and historical track record of a generally robust performance in 2H, we are revising up our projection for Vietnam’s 2022 GDP growth to 7.0% from our earlier forecast of 6.5%, assuming no further severe domestic disruptions from COVID19 and 2H growth of around 7.6-7.8%. […] Downside risks remain material. These include the impact of ongoing Russia-Ukraine conflict on geopolitical developments, energy and food prices, and supply chain disruptions. In addition, US Federal Reserve’s aggressive policy bias could be another source of financial market risk for emerging economies such as Vietnam.”
In contrast, analysts at the EIU were more cautious regarding the short-term outlook, stating:
“Despite a strong performance in the second quarter, we forecast real GDP growth to moderate in the third quarter, to 6.5%, as the rising cost of living tempers private consumption growth towards the end of 2022. The prospect of further lockdowns in China (a major reexport destination and source for inbound tourism for Vietnam) risks disrupting the supply of intermediate goods and constraining recovery in the tourism sector.”