No end in sight for Vietnam's manufacturing woes

Export growth will continue to slow.

Vietnam's slowing manufacturing sector will experience further weakness in coming quarters, according to a report by HSBC.

Vietnam's September manufacturing PMI is a reminder that the country is not immune from the slowdown in the global trade cycle: the headline index slowed to 49.5 from 51.3 in August--the weakest reading since August 2013.

"The sharp deterioration in the new export orders components suggests that a quick turnaround is unlikely. We expect export growth to slow towards year-end," HSBC said.

Here's more from HSBC:

Taking up the slack is the non-manufacturing sector, which drove the acceleration in Q3 GDP growth to 6.8% y-o-y, from 6.5% in Q2. Domestic demand has been gradually reviving, led by stronger activity in the construction industry.

This is also reflected in credit growth, which is expected to run above target in 2015. Stronger-than-expected Q3 GDP, coupled with the nascent pick up in bank lending and domestic demand leads us to raise our 2015 GDP forecast to 6.6%, from 6.3% previously. We also raise our 2016 GDP forecast to 6.7%, from 6.5%.

How long can goldilocks continue? With oil prices expected to stay subdued and the dong's depreciation path confined by the peg, near-term price pressures remain limited, allowing the SBV to keep the OMO rate steady at 5.0% through H1 2016. However, with inflation expected to rebound gradually on the back of stronger growth, we now look for the central bank to deliver a 50bps hike in Q3 2016.