Vietnam sets a fair course with mounting headwinds

Amid rising concerns, in some quarters, about Vietnam’s ability to weather some of the external issues, challenging the region as a whole and the global economy, Vietnam has turned in a pretty spectacular 3^rd quarter economic performance. GDP growth in the 3^rd quarter reached a nine-year high at just over 7.3%[1] to register a growth of 6.98% for the first 9 months of 2019. As the 4^th quarter is normally the best performing quarter because of increased exports for the Thanksgiving and Christmas periods, it looks like we will outperform all the forecasts of the multi-national agencies and the Government with a year on year growth of at least 7%.

Whilst in absolute terms growth rates of exports and other sectors are a little lower than last year overall GDP growth looks like reaching similar levels to last year, hopefully reflecting improvements in labour productivity. For example, export growth was recorded at 8.2% and tourism arrivals 8.7% both lower than the growth rate in 2018. Bearing in mind the global uncertainty this is a stellar performance when compared to our regional neighbours. The purchasing managers Index has constantly remained at over 51 for the first 8 months of 2019, the highest in the region and inflation has been kept well within the Government target of 4%. Other notable factors were a slight decrease in unemployment and improved incomes.

The manufacturing sector was the main driver of the growth expanding by 11.3% followed by the services sector at 7.1%.

There is also reason for continued optimism, as reflected by the Grant Thornton International Business report[2] which ranked Vietnam In terms of expectations for the next 12 months:

#1 with a net 70% projecting an increase in human capital

#2 with a net 60% - behind India (65%) in expecting an increase in exports

#2 with a net 80% - behind Nigeria (89%) in expecting an increase in profitability

#3 with a net 76% - behind Nigeria (90%) and Indonesia (79%) in expecting an increase in revenue

#3 with a net 81% - behind Sweden (87%) and India (86%) in expecting an increase in employee salaries

#3 with a net 67% - behind Nigeria (77%) and South Africa (70%) in expecting an increase in research & development (R&D)

This also ties in with the benefits we are starting to see from the CPTPP and also the expected benefits from the EU Vietnam free trade agreement once ratified by the EU plus the continued movement of manufacturing out of China into Vietnam.

[1] General Statistics Office

[2] Grant Thornton International Business Report H1-2019