In highlights:

  • Vietnam’s economy expanded 6.8% in 2Q2018 and 7.1% in 1H2018, the highest growths in years.
  • The economy is expected to grow 6.8% in 2018 on the back of increased demand for manufacturing exports, rising domestic consumption and continued surge in FDI inflows.
  • Inflation is expected to stay under control, below 4% for 2018.

According to official statistics, Vietnam’s economy grew 6.8% in 2Q2018 and 7.1% in 1H2018. The robust economic growth in 1H2018 was mainly driven by industry, construction and services, particularly wholesale and retail, transport, banking and finance, education and healthcare. For the first half of 2018, industry and construction expanded 9.07% and services rose 6.9%. These are higher than the previous growth rates of 5.81% and 6.85%, respectively. Manufacturing maintained solid growth at 13%, which is higher than the 10.5% growth in the same period last year. Moreover, agriculture grew 3.9% compared with 2.7% in 1H2017.

In light of an impressive economic growth in 1H2018, our 2018 economic growth projection of 6.8% remains unchanged due to the high base effects which will exert a statistical dampener on growth, particularly in 2H2018. High transport and energy infrastructure investments remain key growth drivers. Industrial production will be boosted by continued opening of new multinational enterprises in labor-intensive, export-oriented manufacturing and processing industries. In the first four months of 2018, foreign investors contributed capital and bought shares worth USD8.1bn. Of this, the manufacturing and processing sector attracted the largest amount of FDI, with total registered capital of USD4.5bn, accounting for 55.6% of the total investment. Exports and tourism will benefit from a broad-based global recovery. Private consumption should be supported by rising household income and an expansion in private credit. Nevertheless, the economy will still be facing economic risks, especially an increase in global protectionism. If the trade tensions between Vietnam’s two largest trading partners – U.S. and China – were to deteriorate, it would lead to negative spillover effects on Vietnam’s growth prospects.

As far as inflation is concerned, despite recent concerns, Ministry of Finance committed that inflation will be brought under control, below 4% for the entire 2018. Petrol price hikes in May coupled with price increase in n food and catering services as a result of higher rice and meat prices in the month are primary causes of the aforementioned concerns.  Over the longer run, one of the biggest risks to the inflation rein efforts is the unpredictable variation in global oil prices, especially in the context of escalating geopolitical tensions.

Table 1: Vietnam GDP Growth by Quarter (Constant 2010 Prices)

ytd y/y% 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18
Real GDP 5.1 5.7 6.4 6.8 7.4 7.1
Agriculture/ Forestry/ Fishery 2.0 2.7 2.8 2.9 4.1 3.9
Industry/ Construction 4.2 5.8 7.2 8.0 9.7 9.1
Services 6.5 6.9 7.3 7.4 6.7 6.9

Source: Bloomberg, Vietnam GSO