Vietnam's economy hits 6.8% growth in Q1

Vietnam's economic momentum reached 6.8% year-on-year in Q1 2019, underpinned by ongoing strength in the manufacturing sector, solid service sector activity and improving agriculture output.

According to a recent report by the Institute of Chartered Accountants in England and Wales (ICAEW), Vietnam’s economy moderated to 6.8% year-on-year in the first quarter of 2019, below the 7.3% increase in Q4 2018 GDP.
Growth in the quarter was underpinned by ongoing strength in the manufacturing sector, solid service sector activity and improving agriculture output.
While the rest of the SEA economies have recorded sharp falls in exports, merchandise exports in US$ terms were 10.4% higher than a year ago in April.
This was despite a double-digit fall in crude oil exports.
However, this still marks a deceleration from the 13.3% growth recorded in 2018. Moreover, we expect momentum to continue to trend lower given weaker Chinese import demand and increased trade protectionism.
The recent re-escalation in US-China trade tensions will add further downward pressure on external demand.
Indeed, while trade diversion may temporarily benefit Vietnam, it is still highly exposed to China.
Total exports to China in value added terms accounted for 10.3% of GDP in 2017, of which around 85% was used to meet Chinese domestic demand.
However, external demand is unlikely to fall off a cliff and ICAEW expects FDI and manufacturing production to remain significant drivers of growth.

Interest from foreign investors

According to the Foreign Investment Agency, disbursed FDI picked up 9.8% y/y to a three-year high of US$2.6 billion in the first two months of 2019, with the manufacturing and processing sector garnering the most interest from foreign investors.
Moreover, ICAEW expects inflows to remain strong over the medium term due to the country’s close proximity to China and positive labour dynamics, including low relative wages.
Its participation in trade agreements, notably as part of ASEAN, and policies to attract FDI are also favourable.
Vietnam’s infrastructure metrics are also improving.
But structural reforms are needed to improve firms’ ability to do business in the country as well as ensure adequate education and training to enhance the scalability of production, notably in telecommunications, which is one industry where Vietnam has a comparative advantage.

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