Thanks to the impact of the State Bank of Vietnam's interest rate cut and booming tourism, HSBC forecasts that Vietnam's economy will recover significantly from the last quarter of the year.

HSBC has just updated its forecast for Vietnam's GDP growth for the quarter and the whole year of 2023, saying that the economy will "recover significantly" in the fourth quarter, at 7.3%, a slight increase from the previous forecast of 7.2%.

In the first quarter, GDP reached 3.32%, according to official data from the General Statistics Office. According to this bank, the recovery momentum will accelerate from quarter to quarter, with a forecast for the second and third quarters of 3.8% and 5.1%, respectively. The reason for  economic improvement is the SBV's move to lower the policy interest rate and the positive service sector, according to this bank.

In less than 3 months, the State Bank has reduced the policy interest rate 3 times, each time by 50 basis points. In particular, the last rate reduction took effect from June 19, bringing the refinancing interest rate down to 4.5%. This decision helps support growth through the credit channel.

This move also reflects two things: firstly, the State Bank still maintains the attitude of "inflation is still under control". In fact, inflation has been steadily decreasing, having recently dipped below 3% year-on-year. The second is the possibility of monetary stability. Despite the recent strengthening of the USD, the VND has remained relatively stable thanks to the improving current account situation.

The second bright spot is that the service industry partly compensates for the weakness from difficulties in foreign trade. In which, it is noticeable that the number of foreign visitors has a positive trend. Vietnam has welcomed nearly one million visitors in the past two months, or 70% of 2019 levels.

The bottlenecks of this industry are continuing to be untied. Vietnam has resumed direct flights with China, reaching about 40% of 2019 levels. The National Assembly is also considering easing visa restrictions. With efforts to promote tourism, Vietnam is likely to witness a stronger hit in the fourth quarter, HSBC said.

Regarding forecast for the whole year of 2023, this bank of the opinion that GDP can reach 5%, slightly adjusted compared to the previous forecast of 5.2% due to the impact of the prolonged trade slowdown. It is likely that the State Bank will conduct another 50 basis point rate cut - likely this quarter - to further support growth. This will not happen if the economy bounces back sooner than expected, according to HSBC experts.

Kylie Nguyen