'Driven by the escalating trade tensions between US and China as well as rising production costs in China, Vietnam will remain as one of the low-cost alternatives for export manufacturing and fastest-growing Southeast Asia economies.'

Country Overview: Vietnam is a coastal country located on the eastern edge of the Indochina Peninsula by the Pacific Coast of the Southeast Asian Region, it boasts 3,260 kilometres of coastline, which does not include the few offshore islands along its coastline, the world’s 15th most populous country.

The country shares border with China to the north, and Laos and Cambodia to the west, equating to about 4550 kilometres of border.

It is surrounded by the East Sea in the east and Southeast, and the bay of Thailand in the Southwest. Vietnam is home to more than 95.5 million people, making it the world’s 15th most populous country. The Doi Moi (economic reforms) initiated in 1986 and accession to the World Trade Organisation in 2007 has led to giant leaps in Vietnam’s economy.

Vietnam's Ten Leading Provinces

According to the World Travel & Tourism Council (WTTC) Travel and Tourism Economic Impact 2018 report, the direct and total contribution of Travel & Tourism to Vietnam’s Gross Domestic Product (GDP) was 5.9% and 9.4% respectively, making tourism one of the key supporting industries for the economy.

In 2018, Vietnam’s real GDP grew by 7.1%, from 2017’s growth of 6.8%. Looking ahead, healthy domestic demand supported by strong private credit growth and rapid income growth will partly offset dimmer external demand conditions.

Underpinned by robust arrivals from South Korea and China, Vietnam’s tourism sector have achieved a double-digit growth for the third consecutive year to reach a record high of 15.5 million in 2018, up 20% year-on-year (y-o-y) in international visitor arrivals (IVA).

Under Vietnam’s Socio-Economic Development Strategy (2011-2020), the government seeks to focus on several key priorities for the year of 2019, including macroeconomic stability, quality and pace of economic growth, inflation control, productivity, trade, investment, and increasing the economy’s competitiveness.

Macro-Overview

Vietnam’s growth momentum remained robust in 2018 despite being a turbulent year globally. According to the World Bank, global economic growth is projected to lower for the next two years (2.6% in 2019 and 2.7% in 2020), gradually rising to 2.8% in 2021.

Driven by the escalating trade tensions between US and China as well as rising production costs in China, Vietnam will remain as one of the low-cost alternatives for export manufacturing and fastest-growing Southeast Asia economies.

Figure 1: Economic Outlook

Source: Economist Intelligence Unit, September 2019

Economic Performance and Outlook
Vietnam’s economy ended 2018 stronger than expected, recording a 7.1% real GDP growth for the year. The growth was supported by the export-focused manufacturing and processing sectors. Moving forward, the Economist Intelligence Unit (EIU) forecasts Vietnam’s economy growth to soften to 6.9% in 2019. This is due to weaker global demand and rising trade protectionism.

Currency Exchange Outlook
EIU expects Vietnamese dong to continue the pattern of annual average of depreciation against the dollar in the near term due to the loosening of monetary policy by the US Federal Reserve and a slowdown in the US economy. The gradual tightening of monetary policy by The State Bank of Vietnam (SBV) will support the currency to appreciate.

Foreign Direct Investment
Vietnam’s foreign direct investment is expected to register stronger inflows, anchored by the country’s participation in several major free-trade agreements, the implementation of the Association of Southeast Asian Nations (ASEAN) Economic Community and several ASEAN-led bilateral deals. This is coupled with the recent entry as one of the eleven countries that will benefit from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Interest Rates
SBV is anticipated to follow a pro-active and flexible monetary policy in order to control inflation and support economic growth in 2019. Amidst higher inflation and stronger external sector growth, EIU expects SBV to raise interest rates from 2021.

Inflation
Vietnam’s inflation rate remained at 3.5% in 2018 and is expected to subdue in the following two years. This is being driven by a downward trend in global oil prices. EIU expects inflation to moderate to an annual average of 3.3% in the next five years.

Infrastructure Developments

According to the World Economic Forum (WEF)’s Global Competitiveness Report 2017-2018, Vietnam ranked 75th out of 140 economies in terms of infrastructure development, 22th for airport connectivity, 107th for road connectivity and 109th for quality of roads. In 2017, the Vietnamese government has approved to invest VND30 trillion (USD1.32) billion to develop tourism and transport infrastructure at major tourist destinations.

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