Macro outlook 219 March 219
Asia: Brace, brace
Asia has started to loose some steam of late PMI manufacturing orders (3 mma) 54 53 52 51 5 49 48 47 46 Dec-11 Aug-12 Apr-13 Dec-13 Aug-14 Apr-15 Dec-15 Aug-16 Apr-17 Dec-17 Aug-18 New export orders New domestic orders Source: Markit, HSBC 3
Trade downturn runs deeper than tariffs OECD leading indicator (index) Global electronics PMIs new orders (index)) 2 1 99 98 97 96 95 Jan- Jan-4 Jan-8 Jan-12 Jan-16 65 6 55 5 45 4 35 3 Jan-98 Jan-2 Jan-6 Jan- Jan-14 Jan-18 Source for both charts : CPB, OECD, HSBC 4
Tariffs who stumbled? % y-o-y, 3mma 4 3 2 - -2 Mar- Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 US imports from China US export to China Source: CEIC, HSBC 5
Where the trade tensions hurt Impact of US-China trade war on GDP growth (ppt)* Share of global exports (%). -.2 -.4 -.6 -.8-1. -1.2 US tariffs on auto imports China USA Korea Japan *Direct trade impact of a 25% US tariff on USD25bn of imports from China, and Chinese retaliation Toys, etc Cutlery Cell phones Computers Stereos Glassware Footwear Furniture Apparel PC accs. 2 4 6 8 Others Rest of Asia China Source for both charts: IMF, CEIC, Census Bureau, HSBC 6
Who ll take over from China? Potential gains from trade diversion* (% of GDP) Impact of CPTPP (% of GDP) 2. 1.8 1.6 1.4 1.2 1..8 3.5 3. 2.5 2. 1.5 1..6.5.4.2. IN ID TH MA PH VN Exports Investment. -.5-1. MY* SG VN NZ JP AU IN ID SK TH *Assuming economy captures 1% of Chinese exports to US or 1% of FDI into China *not yet ratified Source for both charts: IMF, CEIC, PIIE, HSBC 7
Sustainable growth in turbulent times
Vietnam is still poised for continued robust growth ppt, contribution 8 6 4 2 Strong GDP growth in the next few years YTD, y-o-y f'cast 8-2 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Agriculture Manufacturing Services GDP, y-o-y (RHS) Mining Construction Others 6 4 2-2 3. 2.5 2. 1.5 1..5 Manufacturing s contribution coming off a - year high contribution to growth, ppt highest contribution in at least yrs.. Dec-7 Dec-9 Dec-11 Dec-13 Dec-15 Dec-17 Industry: Manufacturing 3. 2.5 2. 1.5 1..5. Source for both charts: CEIC, HSBC 9
Exports growth should slow from 217 but should remain robust contribution to export growth, ppt contribution to exports growth, ppt 35 35 3 3 25 25 2 2 15 15 5 5-5 -5 - - Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Aug-18 Exports: Crude Oil Textile and footwear Phones and computer electronics Others Source: CEIC, HSBC
But it s not all about manufacturing and exports Services, particularly transport, accommodation, and retail sales have outperformed YTD, y-o-y 12.. 8. 6. 4. 2. YTD, y-o-y 12.. Sep-13 Oct-14 Nov-15 Dec-16 Jan-18 Wholesale, Retail Sales & Motor Vehicles Transportation & Storage Accommodation & Food Service Activities. 8. 6. 4. 2.. Unemployment and underemployment rates have declined, while wage growth has risen % 2.5 2.3 2.1 1.9 1.7 % y-o-y. 8. 6. 4. 2. 1.5. Mar-15 Nov-15 Jul-16 Mar-17 Nov-17 Unemployment Rate Underemployment Rate Average Monthly Earning, % y-o-y (RHS) Source for both charts: CEIC, Ministry of Planning and Investment, HSBC 11
But it s not all about manufacturing and exports Tourism has reached above m arrivals for the past two years Around 7% of tourists to Vietnam come from Asia, mostly from China and South Korea million 14 12 8 6 4 2 million arrivals million 14 12 8 6 4 2 Asia Americas Europe Oceania Oceania Europe Asia Americas China Japan Rest of Asia South Korea Source for both charts: CEIC, HSBC 12
Domestic risks
Public debt as a reduced threat Public debt-to-gdp in 217 declined for the first time since 212 % of GDP Public debt -to-gdp limit % of GDP 65. 63.7 65. 63. 61. 61.3 61.4 61. 6.9 63. 61. 61. 59. 58. 59. 57. 54.5 57. 55. 55. 53. 5.8 53. 51. 51. 49. 49. 47. 47. 45. 45. the fiscal deficit also dropped to below 4% of GDP in 217-7 -14-2 -28 VND, trn 212 213 214 215 216 217 218f 219f Fiscal Balance % of GDP. -2. -4. -6. -8. Fiscal Balance, % of GDP (RHS) Source for both charts: CEIC, HSBC 14
Credit growth: Quality over quantity Macro-prudential measures have helped funnel credit away from real estate toward tradable industries ppt, contribution 25 2 15 5 %, yoy 25 2 15 5 Dec-13 Sep-14 Agri. and Forestry Jun-15 Mar-16 Dec-16 Construction Sep-17 Jun-18 Industry Real estate, financial, and other services Trade, Transport & Telecom Credit Outstanding (RHS) Source: CEIC, HSBC 15
Credit growth: A race to recapitalise Capital adequacy ratio has fallen consistently, especially at state-owned banks % % 15. Joint Venture, 15. 14. Foreign banks: 14. 27.4% (217) 13. 13. 12. 11.. 9. 8. 8. Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Oct-17 May-18 Credit Institutions State-owned Banks Joint Stock Commercial Banks 12. 11.. 9. Source: CEIC, HSBC 16
Inflation risks greatly reduced HSBC Research - Vietnam at a glance: 2 January 219 17
Long-term outlook
FDI as a driver for future growth FDI has grown consistently over the past few years with the lion s share going to the manufacturing sector USDm 15, 12,5, 7,5 5, 2,5 % of GDP 8 2 211 212 213 214 215 216 217 Total FDI Net FDI Total FDI (% of GDP), RHS Net FDI (% of GDP), RHS 6 5 3 2 Manufacuturing Retail Others 3% 7% 9% 18% 63% Real Estate Transportation & Storage Source for both charts: CEIC, HSBC 19
FDI as a driver for future growth Foreign-invested exports have grown significantly over the past years while labour is still primarily in agriculture USDbn, 12mma 15 USDbn, 12mma 15 % of total employed 5 % of total employed 5 12 12 4 4 9 6 9 6 3 2 3 2 3 2 4 6 8 12 14 16 Exports: Foreign Invested Sector Exports: Domestic Sector 3 212 213 214 215 216 Employment: Agriculture, Forestry and Fishery Employment: IC: Manufacturing Employment: Service Source for both charts: CEIC, HSBC 2
Gains from trade still to be had TPP is coming 8 7 6 5 4 3 2 1-1 Gains to national income by 23 relative to baseline (%) AU* NZ* JN* MA* SI* VN* KR PH TH TA ID TPP 11 TPP TPP 16 Source: Petri, Peter et al, Going it alone in the Asia-Pacific: Regional Trade Agreements Without the United States ; PIIE Working Paper, 17-, October, 217 Note: *Denotes TPP member. 21
Long-term growth forecast HSBC long-term growth model projections for real GDP growth Projected ranking changes by 23 compared with 218 Source for all charts: HSBC 22
Labour productivity relative to the US (US = ) 12 1 9 8 7 6 5 4 3 2 US level CH HK IN ID JP MY PH SI SK SL TA TH VN 27 217 Source: The Conference Board, HSBC 23
Getting old before getting rich 24
Productivity matters 8 6 4 2-2 -4 198 1985 199 1995 2 25 2 215 22 225 23 GDP growth - 4% I/GDP with reforms GDP growth - 35% I/GDP no reforms GDP growth - 35% I/GDP with reforms 8 6 4 2-2 -4 Source: HSBC estimates
HSBC key forecast HSBC's key Vietnam Economic Forecast 213 214 215 216 217 218f 219F 22F GDP (%) 5.4 5.98 6.68 6.21 6.8 7.1 6.5 6.3 GDP per capital (USD) 1,854 2, 2,74 2,27 2,286 2,48 2,617 2,86 CPI (average, % y-o-y) 6.6 4.1.7 2.7 3.5 3.5 3.4 3.7 Export, value (%, y-o-y) 15.3 13.8 7.9 9. 21.8 13.4 9.7 8.3 Import, value (%, y-o-y) 16. 12. 12. 5.2 22.3.9.2 9.2 Trade balance (USD bn). 2.4-3.6 1.8 2.1 7.8 7.3 5.5 Int l FX reserves (USD bn) 25.5 33.8 27.9 36.2 48.7 59.3 67.3 75.3 USD/VND (end of period) 21,95 21,25 22,5 22,77 22,698 232 2355 238 Policy rate (end year, %) 5.5 6.5 6.5 6.5 6.25 6.25 6.25 6.25 Source: HSBC Research Asian Economics - Q1 219 26
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