DOHA: Vietnam is expected to remain one of fastest growing emerging markets (EMs) under the new leadership. Country’s economy is likely to grow over 7 percent and above in 2016 and 2017, said QNB in its latest economic commentary yesterday.
“Statements from The Communist Party of Vietnam (CPV) following the Congress committed to continued reforms aimed at the banking sector, state-owned companies and macroeconomic liberalisation. As a result, the outlook for Vietnam remains positive, in line with the forecasts we published in our December report for growth of 7 percent in 2016 and 7.5 percent in 2017,” said QNB in its commentary.
The CPV selected a new leadership at its 12th National Congress in January. The general secretary was reappointed while the outgoing reformist prime minister will be replaced by his deputy in July.
The changes were cast as a victory for the conservative rather than reformist elements within the CPV. However, the consensus-based decision making process of the CPV and the appointment of a number of young technocrats to the politburo suggest that Vietnam is likely to press ahead with reforms.
In 2015, Vietnam’s real GDP growth accelerated to 6.7 percent from 6 percent the previous year, making it one of the fastest growing emerging markets. Vietnam’s outperformance has been driven by strong export growth, despite a weak global environment, supported by a number of factors.
The report said that Vietnam is attracting strong investment in low-end manufacturing for exports, thanks to competitive wages and free trade deals.
The latter grant foreign investors access to large markets. For example, an initial agreement on the Trans Pacific Partnership (TPP) was signed in July 2015 and a free trade agreement with the EU was concluded in December.
TPP involves 12 Pacific Rim economies accounting for 37 percent of global GDP and 26 percent of world trade. It is the largest trade pact in two decades.
An initial agreement was signed in July, but needs to be ratified by national parliaments. If approved, TPP would deepen Vietnam’s access to large markets (US and Japan), boosting exports.
In anticipation, FDI is pouring into Vietnam. Also, low-end manufacturing exporters are shifting from China to Vietnam as China shifts to higher-end manufacturing and as Chinese wage levels rise.
Vietnam’s exports have been resilient to the global slowdown as demand for some of its products is relatively inelastic (food, clothes and textiles, for example). In addition to strong export growth, domestic demand has picked up, benefiting from rising real wages and a recovery in credit growth and real estate.
“We expect real GDP growth to pick up to 7 percent in 2016 and 7.5 percent in 2017. The positive forces driving exports (such as low wages and shifting supply chains) will persist. FDI has already risen after trade agreements were signed in 2015, but the strongest impetus to growth and exports will come once the TPP comes into force, likely in 2017,” said the report.
Domestic demand should remain strong. Incomes could be boosted by the strong export sector, while the housing recovery is in its early stages and may bolster investment and consumer sentiment.
Finally, the smooth transition of power and continuation of reforms agreed at the National Congress should release investment that may have been held back pending the outcome of the Congress, added the report.The Peninsula
