HSBC has revised its forecast for Vietnam's GDP growth this year to 6.5 percent, up from the previous projection of six percent, following the country's better-than-expected performance in the first half of the year, according to the bank's latest 'Vietnam at a Glance' report.

This will likely put Vietnam back to the position of ASEAN’s fastest-growing economy, a spot it lost to regional peers in the past two years, according to HSBC.

Yun Liu, ASEAN economist at HSBC Global Research, noted that Vietnam's GDP grew 6.9 percent year-on-year in the second quarter of this year, nearly the highest level in two years and well above market expectations of six percent. 

Along with a small upward revision--5.66 percent in the first quarter, Vietnam’s GDP growth expanded 6.4 percent year on year in the first six months of 2024.

"Beyond the decent headline growth, what is more encouraging is that growth has started to show signs of broadening out," the report said.

The biggest upside surprise came from the manufacturing sector, which expanded 10 percent year on year. This was also reflected in strong export growth last quarter, at 15 percent.

Sentiment among manufacturers has also risen notably. June’s PMI rose sharply to 54.7, the highest level in two years.

New export orders and employment rose to recent months’ highs, corroborating a benign outlook for Vietnam’s manufacturing sector.

HSBC’s report revealed that while near-term trade has started to take off, long-term FDI prospects remain a bright spot. Despite moderating from its peak in 2017, new FDI continues to pour into Vietnam.

Manufacturing accounts for the lion’s share, with new registered FDI reaching close to US$10 billion in the first half of this year, or four percent of the country’s GDP. 

The real estate sector is also emerging, with robust growth compared to the contraction seen last year.

HSBC forecast inflation to moderate to a little above three percent on average in the second half of this year, likely bringing average inflation to 3.6 percent this year.

Unlike growth, inflation appears to be an imminent concern, read HSBC’s report.

While cheaper oil prices provided some relief, higher pork prices, a result of the ongoing African swine fever, kept the inflation elevated in June. 

However, inflation is likely to subside in the second half of 2024, as favorable effects start to kick in. 

The bank maintained its view that the State Bank of Vietnam is likely to keep its policy rate steady at 4.5 percent this year, despite lingering forex concerns that may prompt the central bank to hike. 

“However, a hike is not our base case,” according to HSBC.

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