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Signs are now suggesting that it may be time for Vietnam’s external sector to brace for a bumpy road ahead, according to HSBC’s latest report.
For the past two years, Asia’s exporters have benefitted significantly from surging demand for various products. While there have been bouts of supply chain disruption, by and large, Vietnam has been an outperformer, extending its impressive export growth since the advent of the US-China trade tensions.
The momentum lasted until the first half of this year. “However, signs are now suggesting that it may be time for Vietnam’s external sector to brace for a bumpy road ahead,” HSBC emphasized.
The November data was quite striking, showing that exports fell 7.4 per cent year on year, more than HSBC and the market’s expectations.
This marked the first significant year on year decline in export growth in two years, driven by weakness across the board.
As a rising star deeply embedded in the global manufacturing ecosystem, “Vietnam is not immune to a notable global trade slowdown – in other words, “pay-back” time has arrived,” HSBC stated.
Indeed, the manufacturing PMI has been consistently trending down since last May, ultimately dipping into contractionary territory from September, with falling new orders. Vietnam has been on the front line in terms of feeling the pain. Since September, over 630 thousands of workers have been affected by declining foreign orders, with around 90 per cent experiencing a cut to their working hours.
Undoubtedly, the primary drag has come from electronics shipments, which account for around 35 per cent of Vietnam’s total exports. Global new orders for electronics have slipped sharply since the second part of 2022, affecting consumer electronics more than industrial products.
The impact has been broad-based across Vietnam’s three major exporting destinations – the US, mainland China and Europe. That said, Vietnam’s other exports are more prone to an economic downturn, specifically in the US.
Since the start of the US-China trade tensions, Vietnam has gained substantial share in the US market. The gains have not only been evident in its traditional exports to the US – including electronics and textiles/footwear – but have expanded into new categories, including machines and wood products.
For example, Vietnam’s machine shipments doubled their share to 13 per cent of total exports over the last four years – mainly driven by Vietnam’s rising involvement in the tech space, as a large part of Vietnam’s machinery exports are electronics-related.
At the same time, the US market has come to dominate, with its share having more than tripled in less than ten years.
Vietnam has also been a beneficiary of the booming US property market, leading to surging demand for wooden furniture. As a result, the US has widened its dominance of Vietnam’s wood product exports, now holding a 60 per cent share.
However, home sales in the US have been slumping, given rising mortgage rates, with a similar downtrend also evident in the European property market. This has led to notable weakness in Vietnam’s wood product exports.
Lastly, Vietnam’s traditional exports, textiles and footwear, have also started to turn south. While they remained a firm support to export growth in the third quarter of this year, this was almost entirely due to a low base, the effect of which has now faded away.
“Given high inflation and a consumption tilt from goods towards services in the West (with services now accounting for around 60 per cent), we expect Vietnam will continue to see weakness here,” said HSBC.
The "Steam for girls 2024" competition provides a creative platform for Steam and an opportunity for students to connect with peers from various regions within Vietnam and internationally.
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