Vietnam’s growth, though not stellar, is continuing, as latest
high-frequency indicators suggest domestic demand is rebounding, albeit
at a gradual pace, according to HSBC’s Asian Economics quarterly report.
According
to the report, retail sales expanded 13 percent year-on-year in
February, driven by services and tourism, marking an 11.4 percent
increase. Also, imports surged, rising 20.7 percent over the beginning
of the year.
Most of the increase was due to higher input
imports, suggesting that exports will increase in the months ahead.
While exports expanded modestly, at 7.6 percent over the same period
last year, the rate of increase would be positive, overall, considering
the downturn of the commodity cycle.
With the exception of cashew
nuts and tea, however, all commodity exports contracted. What is
maintaining the trade figures is Vietnam’s rising competitiveness in
labour-intensive manufacturing, noting that textiles, footwear,
electronics and phones all rose sharply. Further, the bank expected that
output would continue to expand in the months ahead.
The
February PMI mirrors this rising output, despite a decline in new export
orders. In spite of slowing global demand, the country’s exports were
expected to rise, thanks to a steady increase of FDI inflows. Domestic
demand will also likely stage a modest recovery.
After a sharp
deceleration in 2011, domestic demand has gradually improved, though it
remains weak. The drop in oil prices will likely boost consumer
purchasing power, both directly, due to lower oil and transportation
costs, and indirectly, as producers pass on savings to consumers by
lowering output prices. Gradually rising income is another reason for
improving consumer demand.
HSBC forecast private consumption to accelerate to 5.6 percent in 2015, from 5.4 percent in 2014.
Vietnam
remains a net importer of petroleum, with the decline in oil prices
bolstering its trade position. It is also trade-intensive, especially
the non-oil trade, which means that producers and exporters will benefit
from lower input costs. Low inflation will additionally give the
government space to raise social service costs, as well as electricity
prices. The State Bank of Vietnam would further be tempted to cut the
open market operation (OMO) rate by 50bp to 4.5 percent.-VNA