Global Analysts Bullish on Vietnam's Economic Growth Prospects

Vietnam's Bright Economic Prospects

Spurred by the surging export-oriented manufacturing and service sectors resulting from the country’s trade deals, Vietnam’s economic prospects are expected to remain bright.

Revised Growth Forecast

London-based economic analysis firm Business Monitor International, Ltd. (BMI) last week issued its Southeast Asia report for June 2018, revising its growth forecast for Vietnam up to 6.9% for 2018 from the previous 6.7%. This adjustment follows Vietnam’s stellar GDP growth of 7.4% in the first quarter of the year. The report attributes this likely growth to a strong expansion in export-oriented manufacturing and tourism-related sectors, supported by the government's open-door trade policy and initiatives to promote tourism through easing visa restrictions and active marketing campaigns.

Government's Growth Target

At the April government meeting, Prime Minister Nguyen Xuan Phuc emphasized efforts to achieve a growth rate of at least 6.8% for the year.

Export-Oriented Manufacturing as a Key Driver

Key drivers of this growth include the export-oriented manufacturing sector, which benefits from the government's efforts to further open trade and expedite the privatization of state-owned enterprises. Vietnam has become a manufacturing hotspot in Asia, particularly in electronics, due to its relatively cheap and large labor force, geographical advantages, attractive tax incentives, stable political environment, and open-door trade policies. This environment has attracted major industry players such as Samsung, LG Electronics, Canon, and Intel to establish manufacturing facilities in Vietnam.

Sustained Momentum and Trade Agreements

BMI expects this growth momentum to continue as the government pursues reforms to enhance trade freedom and economic efficiency. For instance, Vietnam is on its way to securing duty-free access to the EU market under the EU-Vietnam Free Trade Agreement and signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in March. These agreements are anticipated to boost foreign investment from partner countries, leveling the playing field for international and private firms and ensuring increased productivity and competitiveness in the economy.

Positive International Forecasts

The government informed the National Assembly that many international organizations forecast Vietnam's economy to maintain its upward trend, making it an attractive destination for foreign investors. The World Bank predicted a 6.5% growth rate for Vietnam, while the Asian Development Bank (ADB) projected that Vietnam would be one of the fastest-growing economies in the region at 7.1% for 2018. Other organizations such as HSBC, ANZ, and the International Monetary Fund also have optimistic growth projections of 6.5%, 6.8%, and 6.6%, respectively.

Surging Local Production

The Ministry of Planning and Investment reported strong local production, driven by major industrial projects. For example, Hoa Phat Group's new steel manufacturing chain, set to start operations in August, is expected to produce 200,000 tons annually. VMF's investment in a new electrostatic painting spraying system will improve painting efficiency and quality. Additionally, the second furnace of Taiwanese-backed Formosa Ha Tinh, with an annual capacity of 3.8 million tons, will become operational this year.

Growth in the Service Sector

Furthermore, the service sector is projected to maintain its growth trajectory in 2018 and 2019, with tourist arrivals expected to increase by 15-20% in 2018 and bank lending anticipated to grow by 17-18%, according to Aaron Batten, a senior country economist at ADB’s Vietnam mission.

Reference: Vietnam Investment Review