Surge in production and exports boosts Vietnam’s economic expectations

Wednesday, 2018-04-25 19:10:18
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Local production will surge strongly this year, thanks to many big industrial projects coming into operation.
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NDO – Fueled by a continued surge in local production and exports, Vietnam is forecasting strong growth beyond its expectations for the entire year, making it the fastest-growing economy in the region.

Nearly one month ago, Takisada - Nagoya, one of Japan’s largest garment and textile groups, inked a US$80 million deal with Vietnam’s Lien Phuong Textile and Garment JSC (LPTEX). Under the deal, the former will purchase high-quality cloth from the latter within five years.

Three years ago, LPTEX invested more than US$30 million into a close-loop production facility to manufacture this type of cloth. The facility has an annual capacity of more than five million metres of cloth.

LPTEX’s marketing director Vu Quang Anh said that at present the firm is the first in Vietnam to invest such a big sum of money into such a modern facility. That is one of the reasons why the firm has been able to land their lucrative co-operation deal with Takisada - Nagoya.

According to the Vietnam Association for Foreign Invested Enterprises, LPTEX is just one of many local enterprises that have been performing well, both in terms of production and exports.

“Local production is bouncing back, with higher exports. And this is expected to continue in the time to come, with the economy expected to grow ever stronger,” said the association’s chairman Nguyen Mai.

Optimism from international organisations

Over one week ago, the International Monetary Fund (IMF) issued its “World Economic Outlook, April 2018” report, which projected that Vietnam’s economy will grow 6.6% this year and 6.5% in 2019, up from the forecast of 5.2% for 2018 as seen in IMF’s previous report of World Economic Outlook issued last July.

Notably, under the latest report, Vietnam’s growth rates for 2018 and 2019 are far higher than the averages for Asia in 2018 and 2019 (5.6% and 5.6%, respectively), and many regional nations, such as Indonesia (5.3% and 5.5%), Malaysia (5.3% and 5%), Singapore (2.9% and 2.7%), and Thailand (3.9% and 3.8%).

Vietnam’s growth rates for 2018 and 2019 are also projected to be far higher than the average growth rates of 5.3% and 5.4%, respectively, in 2018 and 2019, of the emerging ASEAN-5, including Indonesia, Malaysia, Philippines, Thailand, and Vietnam.

Earlier, the Asian Development Bank (ADB) released its Asian Development Outlook 2018, stating that on the back of rising foreign direct investment, vigorous export growth, strengthening agriculture, and robust domestic demand, Vietnam’s GDP growth is expected to accelerate from 6.81% last year to 7.1% this year, before easing back toward 6.8% in 2019.

“Aided by able macroeconomic management, economic growth will spurt in 2018, with Vietnam becoming one of the strongest performers in the region (see box),” said Eric Sidgwick, ADB country director for Vietnam. “Vietnam’s robust economic growth will be driven by vigorous manufacturing and export expansion, rising domestic consumption, strong investment fueled by foreign direct investment and domestic enterprises, and an improving agriculture sector.”

Last week, the Singapore-based ASEAN+3 Macroeconomic Research Office released a report, stating that Vietnam’s short-term outlook remains positive, with real GDP projected to grow robustly at 6.6% in 2018.

Two weeks ago, Moody’s Investors Service ranked Vietnam as “B1-positive”. While highlighting the economy’s strength, Moody’s forecast that Vietnam’s GDP will grow at least 6.7% this year, which is double the average 3.6% growth of other economies ranked “B”, known as “stable”.

According to Moody’s, Vietnam’s impressive growth is being fueled by strong domestic consumption and the government’s heavy investment in infrastructure development – one of the key drivers of economic growth.

Surging production and exports

Vietnam’s Ministry of Planning and Investment reported that local production will surge strongly this year, thanks to many large industrial projects coming into operation, greatly contributing to the country’s economic growth.

For example, regarding steel, Hoa Phat Group will put its new big steel manufacturing chain into operation in August, with an expected output of 200,000 per year. Also, the second furnace of Taiwan’s Formosa Ha Tinh, with an annual capacity of 3.8 million tonnes, will come into operation this year, when Hoa Sen Group will also put into operation its new iron sheet manufacturing chain, with an annual capacity of 350,000 tonnes.

As for petrol production and processing, the Nghi Son Refinery and Petro-chemical Plant will run its pilot testing in mid-2018. Over the whole year, it will produce 5.6 million tonnes of assorted gasoline and petrol, 213,000 tonnes of benzene, and 680,000 tonnes of paraxylene.

According to the ADB, in addition to industrial growth, the service sector is projected to see sustained growth in 2018 and 2019, with tourist arrivals forecast to rise by 15-20% in 2018 and bank lending to grow by 17-18%. Agriculture is also expected to continue to pick up over the next two years, with growth in 2018 set to be broadly in line with the government target of 2.8-3%.

More than two weeks ago, HSBC released a report on Vietnam’s 2018 economy, stating, “Vietnam’s economy remains among the fastest-growing in Southeast Asia. The surge in manufacturing activity in the second half of 2017, helped mostly by FDI-related merchandise exports, looks to have helped Vietnam’s economy to grow in excess of 6% for the third year in a row.”

An HSBC survey showed that 90% of enterprises in Vietnam are quite optimistic about the country’s economic prospects.

Some 74% of respondents indicated the ASEAN Vision 2025 would help to grow their exports, while 63% are convinced the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) would boost their trade prospects.

According to HSBC’s projection, which assumes the status quo in trade policy is maintained, Vietnamese merchandise exports will boast annual growth at an average of 10% from 2021-2030, while services exports will see yearly increases of 7% over the same period. As a result, total exports will stand at US$750 billion in 2030 - four times higher than in 2016.

The economy grew 7.38% in this year’s first quarter, with the index for industrial production climbing to a four-year record 11.6%, which is higher than the first quarter of 2017 (5.1%), 2016 (8.2%), and 2015 (9.3%).

The manufacturing and processing sector, which contributes to 70% of industrial growth, expanded 13.9%, far higher than the first-quarter rises of 2017 (7.8%), 2016 (9.1%), and 2015 (9.5%). The production and distribution of electricity – a vital input for the economy – rose by 10.5%, higher than the 9.4% of last year’s first three months.

Nihad Ahmed, Vietnam senior economist for Spain-based FocusEconomics, which provides global in-depth economic analysis, said that the strong growth in this year’s first quarter will lay firm groundwork for Vietnam’s robust economic growth this year, thanks to the same reasons.

“Solid domestic demand, shored up by steeply rising private sector credit, and thriving tourism activity should also bolster growth,” Ahmed said, adding that stronger demand fueled an upturn in new orders and manufacturing production in February.

“New orders rose for the 27th consecutive month and output expanded at the swiftest pace in ten months. Higher demand from overseas markets led to a solid rise in new export orders. Firms boosted their purchasing activity and raised their inventory levels to support the growth in output,” she said.

By Thu Ha