Vietnam’s economy a bright spot amid regional volatility and inflation risks: Moody’s
DESPITE a moderation in Vietnam’s July exports this year, Moody’s Analytics is positive on the country’s prospects as it remains a beneficiary of investment inflows redirected from policy uncertainties in China.
Vietnam is also the only Asia-Pacific (Apac) economy to experience a significant upward revision to GDP (gross domestic product) growth forecasts by Moody’s Analytics, with the research house now projecting its 2022 GDP growth to hit 8.5 per cent – the highest among its peers.
“A very slow reopening of (Vietnam’s) economy earlier in the year has now turned into a rapid improvement in industrial production and export trade, supported by continued inward foreign direct investment,” noted economists in a Monday (Aug 15) report.
“The uncertainty of policy in China is directing investment toward Vietnam and other Southeast Asian countries,” they added.
While the economists highlighted a deceleration of exports from all 3 export-related economies – Korea, Taiwan and Vietnam – based on July data, they believe demand could stabilise from the US as its labour market is “quite strong”, in their view.
“But the weakness from China and the potential for recession in the UK and Europe by late this year or early next year create downside risk for exports from the Apac region,” they cautioned.
Moody’s Analytics expects weakened trade patterns and persistent inflation to dampen the region’s economic growth in the second half of 2022, although a general pattern of economic and recovery and expansion will be maintained throughout the entire year.
According to its economists, the outlook for China and Hong Kong has declined the most significantly.
China’s real GDP growth for 2022 is now projected to reach only 3.4 per cent, down from the July forecast estimate of 4.3 per cent due to a lack of a significant impact from the housing market or consumer spending stimulus, and the quarterly GDP decline in Q2.
On the other hand, Hong Kong’s GDP for 2022 is expected to hit negative territory after quarterly GDP declines in Q1 and Q4 of 2021, followed by an even deeper 2 per cent quarterly decline in Q1 of 2022 as a result of international travel restrictions and the closed border with China.
“The continuation of Covid-19-related local restrictions through mid-August added to this uncertainty, although current restrictions are limited and located inland, away from major manufacturing and shipping centres,” said the economists of Hong Kong’s economy.
In India, Moody’s Analytics observed “some optimism” for the rest of this year and into 2023 as exports have stabilised and industrial production has improved.
The continued rebound of travel and tourism demand is expected to drive the region’s service and retail industries, although growth in 2023 is expected to decelerate as economies absorb higher interest rates.
“The greatest uncertainty within the region is inflation. While global oil prices specifically, and commodity prices in general, have begun to ease over the past month, this trend is not yet reflected in consumer price inflation across the region,” cautioned the economists.
“South and Southeast Asia face the greatest risk from a surprise in inflation. This could slow local demand for goods and services, including housing. Japan, South Korea and Taiwan are more highly exposed to further supply-chain disruptions from China for electronics and components. A decline in commodity prices faster than expected would dampen the economies of Australia, Indonesia and Malaysia,” they added.