has downgraded its 2016 and 2017 GDP growth forecasts for Vietnam to 6.3% and 6.6%, respectively, from the previous 6.7% and 6.8% after the local economy expanded by lower-than-expected 5.46% in the first quarter of this year.
The downward revision comes in partly because the State Bank of Vietnam (SBV
)’s newly proposed administrative tightening measures are likely to keep credit growth contained, resulting in a moderation in investment compared with 2015, the bank said in a flashnote on Thursday.
SBV in February circulated a draft amendment of Circular 36, which sets several new rules aimed to strengthen risk management of lending activities.
“The curbs on real estate lending and focus on credit quality should help prevent new risks from building up in the banking sector. We support the SBV’s cautious approach,” HSBC researchers say.
The new, “slower” growth profile is likely to prove more sustainable and allow Vietnam the space to rebuild its macroeconomic buffers, the bank says, adding that current account deficits are expected at 0.7% of GDP in 2016 and 1.3% in 2017, down from an estimated 0.3% in 2015.
Coupled with robust FDI inflows and an expected slowdown in capital outflows, this should help keep Vietnam’s overall balance of payments in surplus in 2016, enabling the SBV to build up its foreign exchange reserves.
HSBC puts Vietnam’s forex reserves at around $33.9 billion or 2.5 months of import cover in Q1/2016, up from $28.6 billion as of the end of 2015.
The Vietnamese dong is expected to continue weakening against the U.S. dollar this year, ending 2016 at 23,000 dong per USD.
The bank has also pushed back its call for the timing of the first rate hike by 12 months, to Q3/2017, citing that its 2016 headline CPI forecast has been lowered to 1.6% from 2.9% previously as inflation is likely to stay subdued in 2016.
As such, the SBV is forecast to raise the OMO rate by 50 basis points to 5.5% per year in Q3/2017.