Vietnam’s economy soaring above expectation

According to the global research of Hongkong and Shanghai Banking Corporation Limited (HSBC) on the economy of Vietnam, Vietnam’s economy expanded 7.5 per cent Y-o-Y in Q3 2017 to reach 6.4 per cent year-to-date, just short of the government’s full-year target of 6.7 per cent. This marks the first time since 2010 that Vietnam exceeded the 7 per cent growth threshold.

A continued rise in exports and industrial production were some of the primary drivers of growth, as the strong tech cycle in Q2 persisted throughout the third quarter. Exports grew 22 per cent Y-o-Y in Q3, led by higher shipments of phones and electronic components. Moreover, agricultural production and foreign direct investment (FDI) have picked up handsomely since the first half of the year, further lifting growth.

According to the Asian Development Outlook Update 2017 of Asian Development Bank (ADB), despite the eight per cent drop in the mining output, the rest of Viet Nam’s economy has continued to perform well.

HSBC’s research shows that the manufacturing sector’s contribution to growth has steadily climbed since the beginning of the year to reach its highest level in at least 10 years. This contributes to the expansion of Vietnam’s export industry over the years, particularly in the production of clothing, apparel, and electronics. The services sector has also progressively added to growth, which attests to the country’s strengthening domestic consumption.

Vietnam’s economy firing on all cylinders (Source: HSBC)

Tourism has been especially robust this year, growing 30 per cent Y-o-Y YTD in September, due in part to higher visitor arrivals from Asia and Europe, helping lift Vietnam’s services industry, particularly the growth of its accommodation, transportation, and food services sectors.

FDI also jumped sharply in Q3 and should continue to trickle in toward the end of the year. FDI (in terms of new registered capital) is up 30 per cent YTD Y-o-Y as of Q3 2017 to reach US$14.5 billion, with Japan, Singapore, and South Korea topping FDI commitments to Vietnam so far, contributing around 70 per cent of all registered capital year-to-date.

Vietnam’s agricultural sector has picked up steam, as we expected. Rice and vegetable exports grew by an average of over 50 per cent Y-o-Y in Q3 and should continue to be robust in Q4.

According to HSBC, the strong Q3 print eases the load on the government and the State Bank of Vietnam (SBV) to enact further stimulus measures that might exacerbate risks in the economy.

In addition, even reaching the government’s 6.7 per cent growth target this year would make it less likely that the country would exceed the National Assembly’s mandated debt-to-GDP limit of 65 per cent.