Spain-based FocusEconomics, which provides in-depth economic analysis globally, just released its fresh forecast for Vietnam’s economic prospects, stating that the Vietnamese economy will expand 6.7% in 2019.
“The economy will be one of the region’s star performers this year, buttressed by strong tourism, exports and industrial output,” the firm stated in a report.
Last week, Standard Chartered Bank also released its freshest projections that Vietnam will “remain the fastest-growing ASEAN economy in the near term, with 2019 growth being projected at 6.9%.”
One of the key drivers of the high economic growth will be high exports.
According to the bank, the country’s export growth is expected to remain steady and outperform peers. Electronics exports, which make up about a third of the total, are likely to be less supportive than in recent years due to a reduction in external demand and lower semiconductor prices. However, improving traditional exports – textiles and agriculture – should continue to take up some of the slack.
The Ministry of Industry and Trade (MoIT) reported that in 2019, Vietnam’s exports will be affected by contracted production and exports of the electronics industry led by the Republic of Korea (RoK)’s Samsungand LG.
Samsung’s business and production activities have shown signs of slowing down due to the group’s reduced business results globally. This has underminedthe group’s production and export of mobile phones and their spare parts in Vietnam.
An MoIT report on Vietnam’s seven-month tradereleased two weeks ago cited Samsung Electronics based in RoK reporting that the group’s profit in the second quarter of 2019 decreased by over 50% on-year due to negative impacts of the US-China trade warwhich caused a reduction in the global demand for electronics chips and mobile phones.
“Samsung is expected to reduce its annual profit in the third quarter of 2019 due to slashed prices of chips caused by oversupply and the US’ sanction on China’s telecommunications manufacturer Huawei Technologies, one of Samsung’s most important customers,” the report stated.
In July this year, Vietnam raked in US$3.8 billion from shipping mobile phones and their spare parts, down 1.9% as compared to the same period of last year, when the figure reached US$3.5 billion, a 5.4% rise from the corresponding period of 2018.
In the first seven months of this year, Vietnam earned about US$27.3 billion from exporting mobile phones and their spare parts, up 3.1% on-year, and accounting for 18.8% of the nation’s total export turnover. In the first seven months of 2018, the figure touched US$26.1 billion, a 15.8% climb on-year. Last year, Samsung Vietnam’s export turnover totalled over US$60 billion, taking up 25% of the country’s total.
At present the 2019 production and business plans of Samsung and LG in Vietnam are still ensured. However, in the long term, if Samsung and LG in South Korea do not have sufficient materials for production as planned, their production of semiconductors, chips and screens will decrease. As a result, this will likely influence the spare part supplies for their production and assembly of phones and TV in Vietnam. This would mean the country’s output and exports of electronics will be negatively affected.
An expected reduction in electronics exports is believed by the MoIT to be one of the key obstacles for Vietnam to reach its export goal of US$262 billion this year, up 7.5% on-year.
Under the impact of reduced growth in electronics exports, Vietnam’s average monthly export turnover reached US$20.73 billion in the first seven months of 2019.
“Thus, it will be a very big challenge to hit an average monthly export turnover of US$23.57 billion for the remaining five months of this year, in the context of the global market’s uncertainties,” stated the MoIT report.
In the first seven months of 2019, the total export turnover was estimated to be US$145.13 billion, up 7.5% on-year, but US$1 billion lower than the MoIT’s initial expectation. The import turnover was estimated to hit US$143.34 billion, up 8.3% on-year. This resulted in a US$1.8 billion in trade surplus.
Key pillars
The MoIT expect there will be a rise in exportation oftraditional items to keep and even exceed its export turnover target for 2019.
According to the MoIT, during the remaining months of 2019, Vietnam’s exports are projected to continue keeping its current growth speed with key drivers being traditional staple exports, such as textile and garment, footwear, and wood products.
In the first seven months of this year, Vietnam earned US$10.4 billion from exporting footwear products, up 13.8% on-year. The footwear sector expect that the figure will be US$21.5 billion for 2019.
Meanwhile, the export turnover of textiles and garments hit US$18.3 billion in the first seven months of 2019, a10.5% increase from the same period last year. It is forecasted that the figure will be around US$40 billion this year, up from US$36 billion in 2018.
Nguyen Viet Thang, head of Technical Division under the X26 JSC, told VIR that after the company reaped VND580 billion (US$25.22 million) last year from exporting garments and textile, footwear, and wood products, the company is expected to earn VND600-650 billion (US$26-28.26 million) from exporting these products this year.
In the first seven months of 2019, the figure was about VND420 billion (US$18.26 million), up 10% on-year.
“The world’s demand for these products keep rising, benefiting exporters like our companies. Besides, Vietnam’s business climate has been significantly improved, making it more favourable for enterprises to perform and boost exports,” Thang said.
Nguyen Ton Quyen, vice chairman of the Timber and Forest Product Association of Vietnam, said that many foreign firms currently want to co-operate with domestic enterprises to swell exports to their home markets.
A slew of foreign enterprises are exporting significant volumes of wood. For example, Nam Dinh Export Foodstuff and Agricultural Products Processing JSC’s export turnover is forecasted to climb from US$50 million in 2018 to about US$55 million this year. Meanwhile, many other businesses such as Dai Thanh, Hiep Long, Tien Dat, Cancia Pacific, Phu Tai, and Minh Phat are also expected to rake in an export turnover of US$30-50 million for 2019, up 15% on-year.
“The wood industry’s export turnover has been rising strongly over the past few years from US$7 billion in 2016 to US$7.66 billion in 2017 and US$8.48 billion last year. The figure is projected to be US$11 billion this year,” Quyen said.
Last year, Vietnam’s wood export turnover strongly increased from many markets, such as France (25.5%), Japan (16%), Malaysia (100%), South Korea (48%), and the US (17.5%).
According to the MoIT, in the time to come, many types of export items from Vietnam will likely replace Chinese ones in the US market, perhaps because of the ongoing US-China trade-war. Especially textiles and garments.
Together with this, there has been an investment shift from China to neighbouring markets including Vietnam. This has led to a rise in foreign direct investment (FDI) in Vietnam in the first seven months of 2019, laying a firm foundation for Vietnam to boost its production and exports in this year and beyond.
The Ministry of Planning and Investment reported that in the first seven months of 2019, FDI disbursement for the January – July 20 period reached US$10.6 billion, up 7.1% on-year.
Meanwhile, Standard Chartered Bank also projected that FDI inflows into Vietnam will stay robust this year, particularly in the manufacturing sector, totaling US$18 billion. The sector will also become home to the country’s exports that will considerably contributed to high economic growth this year.
“Vietnam’s growth prospect remains strong, with macro-economic conditions staying stable in the first half of the year which is likely to continue towards year-end. We expect growth to accelerate mildly in the second half of 2019 from 6.7% in the first six months of the year,” said Chidu Narayanan, economist for Asia of Standard Chartered Bank.
