The Hong Kong and Shanghai Banking Corp (HSBC
) has cut its economic growth forecasts for Vietnam by 0.1 percentage point in both cases to 6.2% for 2016 and 6.5% for 2017 as the scope for either monetary or fiscal easing is rather limited.
Lingering bad debts, potential upside risks to inflation, and a slower-than-planned pace of public divestment pose headwinds to the economy, the UK bank said in its latest report on Asian economies.
Inflation has been picking up through the year, accelerating to 3.3% in September, while many upside risks still exist. Upward pressures on inflation include unfavorable weather and soil conditions pushing up the cost of food, a possible recovery in fuel prices and regulated costs of key services.
These risks are narrowing down the room for further monetary easing, according to HSBC.
Similarly, the scope for fiscal easing is also quite small due to the likely increase in investment in infrastructure in the remaining months of the year, and thin revenue from crude oil amid the lower-than-budgeted price.
HSBC mentioned challenges in the country’s banking sector, such as a legacy of bad debt and soaring credit growth.
As of June, 2016, the official bad debt ratio was 2.6%. While relatively small, there is still 200 trillion dong ($8.9 billion) of non-performing loans stuck at the Vietnam Asset Management Company (VAMC).
Failure of the US Congress to ratify the Trans-Pacific Partnership (TPP
) poses another risk for Vietnam.
“Vietnam is deemed to be one if the biggest winners from the TPP. But Vietnam’s government has opted to delay the ratification of the TPP, reflecting tactical considerations, given that the TPP is caught up in the U.S. Congress and presidential politics,” says the report.
HSBC continued to expect the Vietnamese economy to outperform in the near term, predicting a 6.6% growth rate for 2018.
The Vietnamese government has lowered this year's GDP
growth target to 6.3%-6.5% from the previous 6.7%.