Foreign direct investment (FDI
) in Vietnam is expected to remain strong in the second half (H2) of this year, thanks to still-strong interest from multinationals, supporting the manufacturing sector, Standard Chartered
Bank said in a recently-issued report.
The bank said that 65% of FDI inflows so far this year have been to the manufacturing sector, which has received over 50% of all annual FDI since 2012.
“We expect this trend to continue in the coming quarters, especially as manufacturing in China becomes more expensive. Vietnam is the preferred destination of manufacturing corporates in the Pearl River Delta region in South China looking to move their operations out of China,” says the report.
The report points out that over 40% of the bank’s China-based clients are looking to move their operations to Vietnam. Cambodia, the second preference, was chosen only by 25% of respondents.
Continued FDI inflows to high-end manufacturing should continue to support strong growth in electronics exports as more production lines start operations, it adds.
Standard Chartered emphasizes that manufacturing and construction will likely remain the key drivers of growth in the second half, offsetting slower agricultural growth due to the worst drought in 90 years.
Investment is forecast to contribute more to growth this year than in 2015, as implemented FDI is already stronger than in the same period of 2015.
Vietnam’s inflation is predicted to edge up in H2 on better domestic consumption and a low base effect. Headline inflation will likely average 2.6% in 2016 and 4.0% in 2017. Core inflation is likely to remain subdued at around 2% y/y in H2/2016.
The Vietnamese dong (VND) is expected to remain resilient in H2. “The trade balance turning back to a deficit could weigh on the currency, although FDI inflows are likely to contain VND movements.”
rate is forecast to rise towards 22,500 at end-Q3 on a higher USD, before ending the year at 22,400, around current levels, the report says.