Vietnam’s GDP growth will likely remain rapid in comparison with other Asian countries as long as reforms are pursued, Frederic Neumann, an economist at HSBC
, has said in a note.
Among bright spots, the latest PMI
survey shows that the manufacturing sector – the sector that attracts most foreign direct investment (FDI
) – continued to expand in August for the ninth straight month, even as some Asian countries and most Western economies have struggled to stay above the water line.
In addition, global headwinds notwithstanding, overseas demand for Vietnam’s goods has been resilient. Exports and imports in August rose 8.0% and 8.2% year-on-year, respectively.
Similarly, Vietnam as an investment destination remains as attractive as ever, Neumann said. Since January, FDI inflows into Vietnam have reached $9.8 billion as of August, up 8.9% from the same period in 2015.
“Recently, Vietnam’s government has opted to delay the ratification of the Trans-Pacific Partnership (TPP). This is quite surprising as Vietnam has been a strong supporter of the pact and is deemed to be one of the biggest winners from it.
This may, of course, reflect tactical considerations, given that the TPP is caught up in the U.S. Congress and presidential politics,” the economist commented.
Notwithstanding the fate of the pact, Vietnam is forging ahead with plans to cut taxes and reduce red tape for businesses to make them globally more competitive.
Neumann pointed out two risks to the Vietnamese economy, which are upward pressures on inflation and limited scope for fiscal and monetary easing.
Inflation is not a major concern as of now as it remains contained under the 5.0% target. Unfavorable climate and soil conditions, hikes in fuel prices and a significant surge in education prices could weigh on consumer prices in the short term.
Further, the pressure on the budget deficit will likely increase in the remaining months as infrastructure investment is expected to accelerate following a government resolution to the effect.
Meanwhile, the government is pressing ahead with structural reforms, which, if pursued rigorously, should lift Vietnam’s growth rate over time.
For example, Vietnam has revamped its privatization procedures to provide greater pricing transparency via a “book building method”. In addition, officials keep pruning foreign ownership restrictions for listed companies.
“Broadly, Vietnam is thus on the right track. Sure, limited scope for easing may hold growth back in the near term. But steady progress on reforms should help keep Vietnam among the outperformers in Asia,” Neumann concluded.